Kill the laws that keep car dealers in business
vox.com
vox.com
If what the dealerships do is valuable enough to the customer, they would exist even without the ban on direct sales. But I think we can all intuit that if the ban were lifted, buying a car would be a very different (and better) experience.
I recently spent some time on many car companies' websites and navigating the options is extremely difficult. They use all their marketing jargon like sDrive vs. xDrive or 4MATIC or whatever else other nonsense. They don't explain well what any of them mean, and I was left googling the definitions of everything.
Then you get to being actually able to see the car with the various options that you're interested in. The article decries the fact that dealerships have "$100 billion of unsold dealer inventory" but that inventory has a purpose. Some people need a car right away and they aren't picky about it being the exact thing that they want. Some people want to actually see, feel and use the options they are considering.
So I'm against the government-sanctioned ban on direct sales but I think that car dealerships would serve a purpose and survive without it.
For how long? It's a product an older generation that, for some reason or another, appreciates receiving the sales pitch. We're all tech savvy people here; go into Best Buy and start looking at computers. 4 out of 5 times you'll receive a sales pitch with, at least, a few elements of utter bullshit.
Meanwhile, the younger generation are becoming more and more comfortable with buy things online, sight unseen. The GP said it needs to see and feel options on a vehicle. I don't. I need to know what they do, and whether they work (information I can gather from reviews). In my experience, going and playing with something for a brief period of time at a dealership or store doesn't provide enough real world information, and I'm just as likely to make the wrong choice about a feature.
Maybe not, though a lot of people do and you probably should. The ergonomics of a car are more important, and much more complex, than for many other items. Some of this is addressed by adjustable seats, but not all of it. Zappos solved this by doing lots of returns, but that's not a great solution for large items with high shipping costs.
That said, I could easily see the value in having a single specimen at the showroom to check for fit, and then having everybody special order one with their own trim level, colors, etc.
Much more so with cars -- e.g. how would I tell whether 0.5" less elbow space is still good enough, or how good is road visibility from the driver seat (IMO the single most important characteristic of a vehicle!), or whether the plastic feels cheap, or how clear/useful the HUD is, from looking at pictures?
Thinking about it, I've picked my last car based on rear seat headrests obscuring rear visibility too much for my liking in one of the last two contenders. I wouldn't have been able to notice it without actually driving the vehicle.
Sure, there are reviews & ratings, but those reviewers are not you -- if (for example) you don't care about those headrests quite as much as I do, why should you let my opinion skew yours?
Online: You can perform further self-guided research to discern what these terms actually mean and whether you need those features or not. Furthermore, you can see what other people thought about those features.
In Person: You can have the salesperson explain those terms to you. Except... do you really trust someone with a direct financial interest in your purchasing a new car to help you figure out whether you need features and whether this car is the right car for you?
The primary reason to get the dealership out of the picture is, to get the salesperson out of the picture. You don't buy a toaster that way, or even a house. Why a car?
And direct you towards something they have in inventory, not the configuration you came up with on the manufacturers website.
I actually like doing a lot of initial research face-to-face with a person. It's higher bandwidth, and the car is there in front of me, so I can get a sense of the intangibles and other facts that are hard to capture online.
If you live in a state of believing that the market is actually fair and others have an equal shot at participating in it, then someone else entering the market in defiance of the existing protections appears to be unfair.
It's hard to believe that you didn't enter into a job market and win a wage fairly. That, instead, you were unfairly advantaged by artificial pressures in that market much bigger and more entrenched than you.
Essentially, the incumbents have been lied to for years and, now that new logistical realities are changing the status quo, it is very hard for them to understand why this is happening. They think someone must be cheating.
---
To expand on joosters' analogy of taking a fence down elsewhere in this thread [1], it's not necessarily bad if we take the fence down, we just need to realize that doing so may have serious consequences in the near-term. Having such a strong, deep-rooted artificial pressure in a market so abruptly removed may result in a painful readjustment of the market that hurts a lot of people.
(My other comments weren't meant as a defense of dealers, only intended to elucidate their operations.)
I mention this b/c I don't think it's a gradual accident... The dealers forced Ford to shut down factory stores in Oklahoma not too long ago. This is a turf battle.
I don't think the circumstances are as grim. Most of the personnel retained at a dealership do useful work. That same work will be required regardless of who runs the show. They may need to apply for a job at the new factory store, but that's really the extent of the displacement. You're not eliminating an entire industry. You're re-organizing it to reduce friction.
Markets tend to be efficient in the long-term and inefficient in the short-term as it is still determining how to place capital and whatnot based on new information. I feel like our industry (software, and technology generally) understands that well, even if implicitly. It's just that those "inefficiencies" are often real people and the "short-term" means being unemployed or unemployable for a while.
It's important to innovate and to do so boldly, but to also not be cavalier with how that innovation affects a world that was spinning long before that innovation was conceived of. Not to say that you or anyone else on this thread is doing so, I just wish to point it out.
Would you support laws that would slow down the growth of digital cameras in the late nineties and early noughties so Kodak could continue to sell celluloid? I bet a lot of people were affected by that change. Where is the smooth transition for them?
Personally, I have no interest in protecting businesses. I have an interest in protecting competition. I like the disruption and I like the creating of new value that they bring. I just also feel for the individuals who often are so vigorously disrupted.
The problem I have with the dealerships is that they are saying Tesla can't sell cars directly. This is incredibly stupid. Sure, you could say Ford can't set up a store because that'd be like having a Starbucks corporate store right next door to a franchise they authorized. However, if I wanted to create New Jersey's Best Coffee (don't buy my coffee, although there is Best in the name it will be horrible) I should be able to open my own coffee shop with no regard to whatever agreements there have been about coffee shops before. I mean it is one thing to say that my coffee shop should meet health safety requirements (such as not lacing my coffee with poison) and other sensible requirements such as not selling anything with the label "USDA Organic" unless it is USDA Organic.
> I just also feel for the individuals who often are so vigorously disrupted.
Are you talking about the employees? I feel for the Rite Aid and Duane Reade employees more than I feel for the car salespeople. I honestly believe that successful car salespeople have the qualities that will help them land on their feet in any situation. So they will be alright. We will eventually have to seriously discuss the idea of a universal basic income but that is for another conversation.
For one guy I know this isn't true. He was a very good salesman of [a product], but eventually its economics changed, and after that, he couldn't find a job he wouldn't get fired at. Until car sales. I couldn't tell you why -- he's not a jerk or an idiot -- my best guess is that there's some level of generic "being an employee at a company" behaviors we take for granted (meeting long-term commitments, knowing the product) that just don't happen for him.
"short-term" means being unemployed or unemployable for a while.
The hard truth is that to the degree that these things do work as a simplistic free market model might predict (and that is clearly arguable) they may operate on time scales that will do nothing to alleviate to problems the changes cause.
I was not aware that the industrial revolution caused unemployment that lasted for generations. Can you provide a link for further study of this?
Some people may benefit from this "service", but not me, nor any of the people I know. The only benefit I could see from my previous buying experiences is the act of handing out the key for a test drive. Everything else was simply designed to extract as much money from my pocket without giving me back anything in return. I had all the information I needed to make a purchase decision, the financing doesn't need to be done at the dealership, the car can be bought from a website, and delivered to the curb. A bunch of grown men sitting around all day and swarming people that enter the floor with the goal of "giving them a good deal" is not a value proposition. It's a complete misallocation of resources.
Finally, while you're OK dropping the equivalent of a year's pay on a website, most people are not. They need to talk to someone. So you're still going to need salespeople ... although they'll be far more pleasant to deal with, since there will just be one price that everyone pays and you won't have to be in constant fear of being ripped off.
You're describing a regular garage here. We have those on most corners. Some also sell used cars btw. The argument is centered around the sales activities, hence the comment.
And most dealerships strive to make the service part of the equation very pleasant to keep you coming back. You will get a work area, internet, coffee, snacks, TV, etc. while you wait. Or if you want a loaner, they'll make it happen too. Some even have shuttles that will drive you to the local mall.
Mind you, all of this would still be in place with a factory store, minus the hellish experience of buying a new vehicle.
It seems to be mostly tech workers who pine for the "buy it now" experience for car shopping. They all seem to know exactly what make, model, and color they want, and they never buy used.
Everyone else has a budget, coupled with a wide range of what they consider an acceptable car - which is why test driving and "show me what else is on the lot" will always be a thing.
But if you really can't tell the difference between "people use car dealerships because they all find them more convenient" vs "people use car dealerships because of a law that says they have to buy this way", then you're generalizing too far from the above point.
Which makes me wonder how much it would change the US political landscape to eliminate the massive protections granted to car dealerships.
It would certainly change things a lot, but it would have to happen through the same democratic process that put the protections there in the first place.
The way to get rid of regulatory capture is to make it impossible to enforce and let the leeches die.
Uber may not win, but Taxi companies will die.
Drivers are out in the street protesting anything that allows ride sharing and demanding further restrictions. The idea that employees are innocents is riduculous. This ignores 100+ years of unions, associations, legislation, etc. Its the rank and file demanding these laws, not shadowy men cutting backroom deals. If these deals get made its because the rank and file have a enough political capital to make them happen.
>Essentially, the incumbents have been lied to for years
This seems to be politically biased. These people know exactly what they're doing. When the Chicago Teacher's Union marches and claims low pay (instead they are some of the highest paid teachers in the nation), they know exactly what they are doing. When cab drivers block streets to protest Uber, they know exactly what they are doing.
> ...out in the street protesting...
> ...Chicago Teacher's Union marches...
> ...cab drivers block streets...
Your examples are all of its defense which, while understandable, is largely ignorant of the protections' unintended consequences. My earlier comments addressed the creation of those protections and the effects of their inevitable repeal.
> The idea that employees are innocents is riduculous.
I in no way implied innocence of any party.
> This seems to be politically biased.
Not that it matters, but I am contractually obligated to not display political bias in public. Even without that, as a matter of course and as a non-political resident of Capitol Hill, I avoid politically-biased discussion.
So, are there any aspects of being a car dealer that are worthwhile fences? Offhand, I can't think of any, but that doesn't mean there are none.
I believe the California model actually offers a lot of hope: manufacturers can compete, but they must observe a 10 mile radius from existing franchises.
Why does it take so long and yet being a waiter requires no (government) training at all?
The difference, at least in theory, is that the health inspector prevents the outbreak. Word of mouth is generally more reactionary and after-the-fact.
Can you really make that assumption? Customers act selfishly, and game theory applies here.
For example, you try a shoe on in the store and then buy it online for less. The store provided something valuable to you, but you still bought the shoe online. Eventually the store will go out of business if many people do this, and we lose a valuable service because we each act in our own self interest.
It's not hard for me to imagine that protections could be good in some cases.
The only reason I tolerate(d) any interaction with car salesmen at all is the intangibles you get from a test drive. I would much rather just have some kind of option where I can try out car models at some place that doesn't have financial incentive to make me buy one of them.
First, dealerships don't really make that much of a profit on new car sales. At least not Honda dealers. Used cars averaged around $1000 profit, but new cars were around $200. Yes, they really do lose money on some sales. That's not to say that there weren't expenses that were being covered in the price that are exclusive to the dealership, such as the salesperson's commission, but the total profit going to the dealership per new car was low. One of the older, wiser managers, who had come from Toyota told me, "A properly-run dealership pays for everything on Parts & Service. Car sales is just the profit." There are a lot of lean years in car sales. I can attest that no one in management was panicking when gas prices hit $4/gallon and we couldn't give a car away (car managers don't hold back their emotions). Sales stopped, but people kept getting expensive oil changes.
Second, at least within Honda's North American division, you cannot just buy inventory. A dealership inventory is controlled in such a way that area dealerships are forced to compete heavily with each other. In order to sell a car, you have to have a car on your lot. In order to have a car on your lot, you have to order it from Honda. The number of cars you can order from Honda is restricted to a percentage of the number of cars you sold last year, something around 106-110%. You can't just take a big loan and buy yourself volume. To a dealer, inventory is life and must be protected. As a salesperson, I would lose so many deals to other Honda dealers who would lie through their teeth over the phone to sell. Dealers will cut their own throats to steal a sale from another dealer because each one is a net +2 in the inventory war. In theory, this is great for customers on cost, but terrible for customers on experience.
The owner of the first dealer I worked for had just sold the dealership to a Fortune 500 company. He spent years and years basically giving cars away until he had the largest inventory on the entire East Coast (a big deal for Honda) and then had something very valuable, something that couldn't be bought. Somewhat like how Amazon, in theory, operates.
A properly run organisation can sell and re-sell the same car several times, also selling parts and services to each owner in between sales.
Rental and other fleets are particularly battled after for this reason as they can "inject" far more life time value in the the network than just the initial sale.
I don't understand the above: you mean people buy new (unused) cars from dealers, "off the shelf"? Aren't most new cars custom? Are US customers more impatient, so that in order to close a sale you need to have the various options pre-built, so that people don't have to wait four months for their new car to be built?
I have rarely seen a new car sitting at a dealer here (Europe), most dealers have one, maybe two, of the latest model, to be used by testing for potential customers.
It is the job of the salesperson to "get them there", to nudge the customer towards making a decision to buy a car today.
More wisdom from a great manager: "Sales is the process of transferring emotion from the salesperson to the customer." If you're morose and apathetic, you can turn a buyer into a shopper. But if you are engaged and energetic, you can take even the most guarded shopper and make a sale out of it.
I saw this every time I watched Steve Jobs give a keynote.
It also drives other interesting behavior, like people driving their cars until they are literally on their last legs and then dumping them off at the dealer on trade-in, knowing they wouldn't have been able to drive their old car home because it would have died on the way.
Compared to their EU configurators that's quite a difference: the yes/no accessory options alone are 40-60 (!) choices for a new Golf. Just speccing a new car on the company sites here can be an hour of work at least.
That explains it at least a bit: there are way fewer customization options for new cars in the US, meaning the chance of a dealer having the right car (basically, the right trim+color) isn't unreasonable.
As an additional bonus, older cars are far less likely to be encrusted with insecure, untrustworthy, unreliable microcontroller-based nonsense, much less anything so insane as Tesla's over-the-air automatic firmware updates or GM's yes-we-rooted-your-car-in-the-factory OnStar thing.
In the US configurator (https://www.vw.com/builder/) for a new Jetta SE you choose between 1, engine, 1 transmission, 1 type of wheels, 7 colors, 1 interior color, and have 0 optional extras I'm not sure why the damn configurator takes me through page after page with no choices. That gives you SEVEN different models of Jetta SE. A dealer has to have SEVEN Jetta SE in his lot to be able to sell a customer ANY car he could have built on the site. Under those circumstances, I too would find it pretty shocking to wait several months because I wanted the red Jetta and the dealer had only one blue and two silver.
But now look a the UK page: http://www.volkswagen.co.uk/new/jetta-gp/configure
We have
7 engines to choose from (cheating, non-cheating etc)
5 wheel options
10 exterior colors
9 interior colors/trims
50 optional extras
So even if we can probably guess that a lot of the extras will be packaged in nearly every car, and some of the options like wheels could be switched by the dealer himself, a dealer couldn't reasonably have less than at least a few thousand Jetta SE's if he wanted to be certain to have the car I want. He isn't going to. So what I do is a configure my car from the several hundred thousand different configurations of Jetta SE I want, then I go to a delaer, haggle a few percent off the price, sign a piece of paper, and wait a couple of months for it to be built. Or I buy a used one in his lot, which is cheaper, but isn't exactly what I want.
As for horror stories: I just learned about "delivery fees" in the US.
Maybe Toyota does it differently from Honda but this is the way the Toyota dealership manager explained it to me: all the dealerships are grouped into a "region" such as Houston+Dallas+Austin+etc. The new cars going to those 3 cities enter the USA at the gulf port of Houston (or Galveston? can't remember exactly). If I go to a Houston dealership "A" and I want a black Camry but they don't have any on the lot, the dealer can check the entire region's inventory. If Houston dealership "B" or Austin dealership "C" has them, those other dealerships are required to swap cars with dealer "A". That way, the customer isn't forced to go to another dealer just to get a particular car. The dealers' computer screens showing inventory all show every competitors' available inventory. It's possible the Toyota manager's explanation was bs or I left out some critical details.
To make the Toyota story compatible with your Honda story, I suppose that for a dealer to sell a car, he still needs to have inventory. To sell 50 cars, he needs to be allocated 50 by Toyota Inc. But he's doesn't have to sell particular the 50 he happened to get. The "50" is really part of a shared pool of cars.
I had negotiated a pretty large discount on the car so I have no idea what sort of shenanigans the two dealers had to go through to exchange inventory.
The Toyota manager said they exchange on either MSRP-to-MSRP or dealer-cost-to-dealer-cost basis. Either way they do it, it comes out the same for them. Whatever amount of discount you were able to negotiate from a dealer would be independent from their internal swap basis.
However, the "requirement" that cars be swapped was something that managers told customers to ease their minds while they steered them towards a car that was on our lot. The only requirement was that both dealers had to agree on which cars were being swapped.
Why tell them that? Because managers are loathe to exchange cars since it often doesn't work out:
- We couldn't legally bind them to buy a car we didn't have possession of yet, so we had to wait for the exchange to finish.
- Customers change their minds easily and may not really want the car once they see it. Or, they may hear back from another dealer while you're exchanging and go there instead.
- It takes a salesperson off the floor for hours which costs the manager money.
- The other dealer gets to demand what they want of your inventory and may ask for a higher-demand vehicle in exchange.
- Customers hate having "mileage" on a new car (I once had to swap a 21 mile car for a 7 mile care because a customer was so put off) and the manager knows that once they see the "mileage" they may decide otherwise.
That said, a manager may authorize a transfer for rare cars. I once had to drive for an hour and half, from Virginia to Maryland, to another dealer in an S2000 to exchange based on color. Got turned around leaving the other dealer, wound up in Pennsylvania. My manager never believed that I didn't go for a joyride.
EDIT: How do you create bullet lists on HN?
- You can fake it.
- Start with a blank line.
- Indent each subsequent line with two spaces.
- Use hyphens as your bullet.
- Lines that are too long will cause
horizontal scroll, so break them manually.I don't know why the swaps are driven. Why doesn't the dealer get a 1-ton truck and trailer, and haul the car to keep the odometer low? Oh, and the story about "Our swaps are gently driven by retirees" is bogus. I've been passed by those guys going 90 mph.
> Oh, and the story about...
Oh my goodness, salespeople absolutely abuse the cars. (For the record, I did not.)
Service and used cars are the broken market, those subsidize new car sales. "Certified used cars" and such are almost always over paid for. If can be dramatic too, we tracked my wives old Subaru through from trade-in. They gave us about $2000, then the last we saw it it was still in the region (about 80 miles away in a smaller town) listed for just under $8000. It was very clean and needed a new head gasket, they may have done that, maybe not, that would have cost us about $2000 so it didn't cost them that. even if it did they were still asking 100% more and we don't know what price the eventual buyer negotiated.
The laws that protect the dealers may be a problem, it looks like most states just want to protect the big "local" businesses from the big corporations though. The used car market seems like it could really benefit from disruption though.
BHPH sales are when people with no/terrible credit get an overpriced used car financed by the dealership where it was purchased at 29% interest and $300 bi-weekly payments (for example). The dealers bank on the fact that these people will probably default in a couple of months. Then, the dealer repossesses the vehicle (easily with starter interrupt and GPS devices), and then it can be resold at the exact same price (and the dealer can sue for deficiency balances owed by the previous owner if they so choose). The people who have to resort to this way of car buying are already desperate, and the BHPH dealers are designed to profit off of them.
The FTC and Consumer Financial Protection Bureau are slowly starting to catch on, but the lobbying by groups like the National Independent Auto Dealers Association is very strong -- they have A LOT of money, and they're always looking for ways around the law. The latest trend is changing a few words on the contract, calling it a "lease" and ripping off the consumers in just the same way.
Laws can't protect stupid people from wasting their money and I don't want a world so locked down where they could. And what's the worst case scenario? The car gets repossessed and their credit goes down (ie less people will trust them to make purchasing decisions in the future). There is no debtors prison and its highly unlikely they would have wages garnished unless the car was destroyed.
I found out about that subtle difference the hard way when I had a problem with a Toyota and expected Toyota to honor their advertisements. Turns out I bought from SET, so Toyota didn't care.
This is essentially the case on all volume mainstream manufacturers. Hyundai/Kia, Toyota/Scion, Honda, Nissan, Mazda, Ford, Chevrolet, Dodge/Chrysler all fall in this bucket in the United States. The exception to this being trucks (RAM, GMC and Chevy Silverado, Ford F-Series).
Where money is actually made on sales are in the luxury segment. However, who is really making the good money has become interesting over the years. Lexus, Acura, and Cadillac margins are fine, but the Europeans have better margins still, though there's still a chasm between everyone and the VW Group.
Rolls-Royce aside, BMW only has Mini which has been little more than break-even since its relaunch. Moreover, there are slimmer margins on the 1/2-series since they serve as conquest cars. The same goes for Mercedes-Benz with SMART, and the CLA/GLA being their (very aggressively positioned) conquest vehicles. For mainstream luxury brands, Audi has some of the highest gross margins at 10%. Yet their ultra-luxury brands -- Bentley, Lamborghini, and most importantly Porsche -- is where the real money is made (at least on a per-unit basis). I struggle to think of the last time (since their return to form 10-15 years ago) where Porsche's gross margins were under 20%. Porsche prints money.
Sorry for not taking JLR into account, as they're still restructuring. Infiniti is excluded because Ghosn has nearly killed the brand twice. As for Tesla, I've been saying for years that they were more likely to model themselves more after Porsche than Honda/Toyota, as that's where the real money is for a still growing company. When the Model X pricing was announced, that was all but confirmed.
Finance:
- why can't I rent a car for a month and if I like it sign up for a year or two or three? If I want to own it, why can't I just convert to a purchase? These options are not fluid and interchangeable which necessitates much more of a "sale" rather than a more flexible, value oriented approach. A manufacturer should always be willing to convert a purchased vehicle into a lease or rental again.
Inventory/Planning:
- trim levels are out of control and make inventory planning much worse. If the base model sells for $18K but is available in a $36K trim level, is it really the same car? Why not just keep it simple. Nobody wants the salesperson to exert pressure to make me buy some "touring package" that I don't care about just because that is what is on the lot.
Pricing/Selling:
Buying a car takes hours while you wait for the salesperson to try to sucker you into paying full MSRP and he/she pretends to be negotiating on your behalf with the manager, who writes with a marker on the sheet of paper the best price. This horrible practice is highly unpleasant for all involved. The dealer lobby prefers negotiated pricing over fixed price because it suckers poorly informed consumers (many of whom are elderly) into overpaying.
I'd like to walk into a dealership pre-approved for a loan and pick from among 3 or 4 exterior colors and be done with it in 10-20 minutes. Better yet I'd like to just order it online and have it delivered in a few weeks, or better yet (per the above suggestion) just rent it for a month on an impulse.
All this is probably a distraction though, since self-driving car tech will allow us to get by with a fraction of the number of cars on the road and likely few of us will choose to own a car in the traditional sense.
You can, but if you don't buy it they now have a radically-devalued product they still need to sell. Some dealers experiment with this. Many of my customers had problems with buying a car with 100 miles on it "new". I can't remember the exact regulation, but at a certain mileage a car is no longer legally new.
> trim levels are out of control and make inventory planning much worse.
Absolutely. Honda attempts to address this (in the US market) by having very few trim levels and (when I was selling) no options.
> Buying a car takes hours while you wait for the salesperson to try to sucker you...
Yes. It's a terrible practice. One that is getting slightly better with internet shoppers who get the price negotiated before they step into the dealership. Most of my old-school managers felt that, within a few decades, negotiating over prices would end.
It's interesting because often the trade-in value is mostly what is being negotiated, but the customer doesn't realize this. Or perhaps financing rate games are being played which the customer is unaware of.
I think many of the limitations come down to the way the car business is financed. Ford Motor Credit, for example, uses lease rates as an incentive to get more vehicles manufactured. So while the market rate for a customer might be 3.5%, there is 1% financing available for a limited time.
Similarly, Ford Motor Credit may prefer to incentivize leases vs purchases (or vice versa) because both look different on the company's books. There is arbitrage going on because the financing rate on a lease is partially due to the credit risk of the customer, and partially due to the residual price risk of the make/model/trim.
So the company may be happy to offer 0% financing on a sold vehicle, but only 2.9% on a lease, because the company keeps the residual price exposure.
This makes lease/purchase financings difficult to transform, because the accounting is only done relative to "new" vs "end of lease", so doing it on a vehicle someone rented for a month which has 2560 miles on is much more challenging, and the result of this is that the market value of the 1 day old "used" vehicle is often significantly below invoice, since when it is sold as used none of the new car incentives apply, lowering the value of the vehicle significantly, and disproportionately to miles driven, wear and tear, etc.
So I think it's ultimately that there is insufficient sophistication on the finance/accounting side to allow OEMs or dealers to have any incentive to keep 1 month old vehicles with 2560 miles on their books. With a small adjustment to price and warranty, the customer should be completely indifferent to this vehicle vs a new one.
I think this is a legacy of the car business as an assembly line where everything coming out of the "finished" end needs to be sold ASAP before it goes stale. Consumers likely want a much more services oriented approach b/c cars are typically more of a long term asset.
I think these are legacies of the core reason why the car companies went with the franchising model in the first place: It takes tons of capital to bring cars to market and sell/distribute them nationally, and there is a fair bit of risk too.
Because of the massive depreciation on a new car the minute you drive it off the lot.
> - trim levels are out of control and make inventory planning much worse. If the base model sells for $18K but is available in a $36K trim level, is it really the same car? Why not just keep it simple.
There are a lot of trim levels in cars for the same reason there are a lot of models and options in Lenovo's computer lineup: https://en.wikipedia.org/wiki/Price_discrimination. When you're selling low-margin products in highly competitive markets, you do everything you can to eke out a bit of margin with price discrimination.
> The dealer lobby prefers negotiated pricing over fixed price because it suckers poorly informed consumers (many of whom are elderly) into overpaying.
This is another form of price discrimination.
Does the car depreciate? Or is it that it can no longer be sold as "new", making many of the incentives irrelevant. If the "new" car gets 0% financing, and the "used" car with one mile on it gets market rate, then of course there can be a higher sticker price on the new one.
The lower price is due to various market failures or trust breakdowns, not b/c the car itself has changed.
There are many different types of value that are reflected in the market price of a good. Cars that are no longer new lose value, thus by definition they depreciate.
Which is the false equivocation. You're ignoring that a vehicle market price reflects more than just financing value - a car isn't a basket of bricks.
At this point I feel like your efforts to tenuously redefine depreciation are indicative of a cognitive dissonance. Why do you really want to change how people define "depreciation" for cars?
I'm describing specifically the dynamics that cause a car that has been sold and driven 3 miles to be worth less on the market than if that same care had been test-driven 3 miles but not sold.
My argument is that while we tend to view the sale of the car as triggering a drop in value, that is not entirely responsible for the price drop.
The price drop is also a function of available financing options, since the vast majority of cars are purchased alongside a financing product... and the specific product used is not typically available to a customer wishing to purchase the vehicle that was sold and driven one mile.
Since price is a function of supply and demand, the price lowers (depreciation occurs) because there is less demand for the basket containing the car without OEM financing than there is for the basket containing the car with OEM financing.
This is what you'd expect, which is why OEMs offer financing incentives to increase demand.
My argument is not that depreciation doesn't occur (because that is the way we typically describe the "sold" one selling for less)... Just that without the financing incentives demand is lower and since price is a function of supply and demand, price is also lower.
The causality is important, since the topic being discussed was the mysterious way in which dealerships work.
My point in making this distinction is that consumers are buying a physical product and a finance product bundled together, thus there is room for significant innovation in the automotive industry simply by getting more clever/creative with how the car + finance + insurance are packaged...
It has nothing to do with that particular car, but rather the "unknowns" about that car. It could be a very nice car in about the same condition as when it was brand new.
When it is new, the car is a fixed entity. There is nothing unknown about it. Once you drive it off the lot, there is something unknown about the car - Where did you drive it? Was it in an accident? Did you drive it too hard? Did you change the oil when you were supposed to? Too much wear and tear? Did you spill something on the seats?
Because of that, once it is no longer new, the car has more risk associated with it, and thus loses value (in addition to value lost due to normal wear and tear). You could have driven only one mile, but that one mile could have been off a cliff for anyone knows.
The new one may have an advantage because of the warranty, but taking advantage of the warranty can be a huge hassle.
If you just want no-hassle car ownership, it may make more sense to buy an old beater that's running good, and when it starts to give you trouble, buy another one.
People are willing to pay a substantial premium for a car that is completely brand new, as compared to a car that is very nearly new but has been driven by another person for a short time.
That's all it takes to be able to say that a new car depreciates substantially the moment you take it home.
Ahh yes, they must benefit the environment only when new :)
Given the increased prices in the used car market (arising in part due to better durability and quality), I think I might be able to make an interesting argument for incentives towards purchasing used cars as being better for the environment than incentives for purchasing brand-new electric cars.
I think in the US we would get the most mileage out of reforming CAFE to make it less friendly to daily driver trucks.
Applying a similar discount to cars, a 1-month "try before you buy" rental would cost the dealer $1,500 to $3,000 on a $15,000 car for each one that was returned. Apple because their products have large markups. A dealer can't, because they probably make less on each car (in absolute dollars) than Apple makes on a laptop or iPhone.
The certified pre-owned programs are a way that the automotive OEM tries to add respectability to the used car business, which is often a bit shady. When a vehicle has been certified it's been looked over by a mechanic but most importantly it comes with a warranty that rivals a new car warranty.
The OEM is taking on financial risk by insuring the vehicle against defect, in order to increase the market price of its used vehicles, which improves leasing residuals and makes it possible for the firm to lease new vehicles less expensively.
You've hit upon the key issue, which is that it takes the OEM being willing to (in some way) embrace the used item and take responsibility for it the way it does with a new vehicle. Because of the focus on sales numbers financing that is actually a marketing program, once the vehicle has been sold once the OEM has no incentive to own/sell it again, since it is already "sold" as far as wall street is concerned.
So in order for this to change, OEMs would have to make financing and warranty products available that addressed the consumer concerns with a vehicle that someone else drove for a day, week, month, etc.... such as, for example, insurance against the realization a few weeks after purchase that the previous owner had spilled milk on the rear seat and it's now going sour (essentially giving the vehicle a permanent bad smell unless the seat is replaced).. etc.
I went to the Honda dealer a month ago and test drove a new CRV. The salesperson refused to even consider budging from the MSRP. He let me walk when I said I would only consider going lower (largely based on Truecar pricing). I looked at the details of the cost and there were endless dealer fees on there as well. The whole thing was Kafka-esque and insane to me. My wife and I walked away with nothing and the sales guy left me a VM on my phone every single day for a month afterwards hoping I had a change of heart. The car, while decent, is far from a luxury product and the idea that its so far in demand that they won't negotiate is laughable. The CRV comes at a slight premium of other cars in its class as well.
Meanwhile, at other dealers I can negotiate literally thousands off the MSRP. I find it very hard to believe the Honda dealer is making merely $200 per sale. Considering the real estate they have and cost of running that operation, they would have to sell hundreds of cars a day to avoid bankrupcy.
Oh and the trade-in cost for my car they offered was literally half its market value. Considering the value of my trade-in car and the terrible price offered, my estimate is that they were going to make about $5,000 off me if I agreed. Probably more, especially if I took their financing. Then we're looking at, 2 or 3x that?
There's a reason cars aren't sold at flat prices like other goods. This game they've developed can be very profitable.
I'm curious why you'd expect them to take it for more? They wouldn't do trade-ins if they couldn't profit off of them, and you can't buy things for market value and run a successful business.
If you want close to market value for your car, you have to sell it yourself. And if you think about why you didn't do that, you can see why it costs you something to do a trade-in.
They make a killing on your trade-in.
They make a killing on extended warranties on used cars.
They make a killing on maintenance and oil changes and the packages they sell around these things.
So although in general they make more than $200 or whatever on the new car sale, they make their real money on everything else around it.
Like a lot of programmers, I was bad at dealing with people, both personally and professionally, and knew I needed a way to address that. While a year of going up to complete strangers in an already tense environment and being rejected by 97% of them (an average rate) helped me greatly, it's taken quite a few more years to get better "at" people.
> Did you regret pausing it?
I did not and do not.
> were you easily able to get back in?
Hmm. I've discovered over time that I am particularly good at weighing what is worth learning and what is worth ignoring. (I base that on revisiting my old assertions of what technologies and trends will matter in the future.) In that way, any loss of time to periodic pauses to my career (there has been more than one) have been outweighed by my ability to renew it quickly. I wouldn't consider myself a "10x coder" but I'm decent and I reason well about complexity, which helps.
Whatever your status in your field, I highly recommend exploring other adventures in life for two reasons. First, seeing life without your career helps reduce its importance in your life, providing perspective on what can otherwise seem like an inviolable part of your identity. Second, if and when you return to your career, if it is something that you like, you will find yourself valuing it more. I started out not really sure I wanted to be in this whole software thing. Now, I love it and love being good at it. For that, I am thankful.
For example: In most cases, the dealership buys the cars on the lot from the manufacturer via vastly short term loans. When the above article mentions the cost of sitting inventory, I assume that is what is being discussed. This isn't like inventory in a store, where the main concern is that it is losing value with age and occupying floorspace, this is actively costing INTEREST, in addition to deprecating with age and requiring lot space.
I'll also second the other comments that talk about Parts & Service as the primary income. User/Certified Pre-owned come in a distant second, and new cars (aside from certain brands) are at best a thin margin, sometimes a loss-leader.
While my management was very gung-ho about our customers, I saw nothing to convince me that the average dealership offers any value-add to the consumer, and where there is value-add it's destroyed by the laws that discourage competition and encourage industry practices that aren't good for the consumer.
For those who don't have mechanic skills, knowing that the dealership is trained to _only_ work on your model of car is extra assurance that they'll do it correctly. (EDIT: Not a guarantee of course, but any extra assurance is helpful)
Semi-tangential: https://www.youtube.com/watch?v=Ii8rC6CPCvM
You can't write a balanced article on car dealerships without researching why these laws were enacted in the first place. So many people here just assume "oh, it's because of greed" - but perhaps you should spend a short time first of all investigating why these laws were created and the problems they were trying to solve.
Likewise, you can't write a convincing article about removing these laws if you don't speak of the reasons why the laws were created. You need to show why these reasons are no longer good.
> The quotation you’re looking for is from Chesterton’s 1929 book, The Thing, in the chapter entitled, “The Drift from Domesticity”:
In the matter of reforming things, as distinct from deforming them, there is one plain and simple principle; a principle which will probably be called a paradox. There exists in such a case a certain institution or law; let us say, for the sake of simplicity, a fence or gate erected across a road. The more modern type of reformer goes gaily up to it and says, “I don’t see the use of this; let us clear it away.” To which the more intelligent type of reformer will do well to answer: “If you don’t see the use of it, I certainly won’t let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it.
Essentially, California pioneered the idea of protecting existing franchises from being cannibalized by the manufacturer that they were dependent on. But other states have taken the idea to an extreme.
[1] http://motherjones.com/politics/2009/02/why-you-cant-buy-new...
Google can point out some allegedly biased reporting they have done [1], but I'm certainly no expert on it. My concern, in this particular case, is that Mother Jones has, by most accounts, a left-leaning bias [2, among others]. Dealership associations have, by most accounts, a right-leaning bias [3, among others]. The conflict there raises my internal alarm when reading them on this issue.
Moreover, you can't talk about franchise protections without talking about two major recent presidents during their tenure as governors. That those presidents are generally referred to negatively by MJ (in my personal estimation) and that casting their political legacies in a negative light makes a naturally-appealing target, needs to be considered.
That said, I agree with you. I find MJ's articles generally good and I believe their reporting on this issue was very enlightening.
[1] https://www.google.com/search?q=mother+jones+bias
[2] http://www.allsides.com/news-source/mother-jones
[3] http://fivethirtyeight.com/features/news-flash-car-dealers-a...
This is the most frustrating thing about uncommented sleep() calls sprinkled through a codebase.
The argument for this stuff is mostly "OMG Tesla is awesome!". But folks forget/ignore that having to deal with A fortune 50 company as a consumer isn't fun either (recall: AT&T in the old days). Your local car dealer may have annoying commercials, but the folks who allowed a defective $0.50 ignition switch to kill people didn't work for a Chevy dealer... They were GM engineers.
Why would you assume that such a fence was erected for a good reason and not out of malice or for personal gains?
I’d use the analogy “Go the way of the dinosaurs,” it speaks to the fact that those who adapted, the avians, survived, without the baggage of debating the morality of hunting a species to death.
http://www.npr.org/sections/money/2013/02/19/172402376/why-b...
http://www.americanbar.org/publications/franchise_lawyer/201...
What bugs the hell out of me is that on HN - rather like on reddit - there are often comments that make lipservice to an abstract concept of quasi-erudite fairness, saying "well if we don't have all the facts, how can we judge!?" well, two responses:
1. You are literally already on the internet. Use google for like, 30 seconds. 2. Oftentimes, those facts are actually in the underlying link.
In this case, it is self evidently true that the laws that were passed to prop up car dealerships came about in an era without mass marketing, but, very importantly, and self-acknowledgledly, these laws existed to prevent the manufacturer from undercutting prices offered by dealers - under the theory that dealers were of critical importance to customers for servicing and selling cars. Which is a combination of circular and dumb. And even if it was once true, because people could not comparison shop without the internet, it is now no longer true, because people can comparison shop with the internet and can visit manufacturers directly for servicing.
These laws are literally anti-competitive monopolies that, if they never existed, would not need to be invented now to protect consumers. Instead they operate as enforceable licenses, dividing the country up into fiefdoms, in which each little fiefdom the local car dealer is the ensconced baron, operating with a monopoly on all original cars sales from that manufacturer in that territory - and if another dealer tries to sell new cars from that manufacturer in that territory, they can be stopped by the state and sued out of existence.
That, dotcomrade, is a load of bullshit. And easily discoverable with a 30-90 second google search.
There aren't a lot of other products that people are willing to travel for versus just buying at their local big-box like Target, Best Buy, etc. What other product category even comes close?
I'm a big believer in Chesterton's Fence too, but what do you do about fences put up by someone who had no right to put it there? If someone erected a wall through the middle of your kitchen, would you have the same reticence to tear it down? The way I see it, the state has no right to enforce a ban like this, and we would be justified in ignoring and circumventing it.
These arguments are rife in US political discourse, but as an outsider with no emotional investment in the idea of guarding against the dreaded tyranny of kings... I note that such arguments always avoid addressing the underlying problem.
In your case, there is a fence in your kitchen, and there you are tearing it down without pausing even for a moment to ask why it is there. Was there a fire while you were out, and the floor on the other side of the fence is no longer sound? Is there some kind of toxic chemical spill going on? Is this a crime scene that must be preserved while evidence is gathered?
The argument of whether the state has a right is certainly interesting, and we ought to have it, but we still ought to understand why they thought the fence should be put there, regardless of our interpretation of whether they had that right or not.
I guess I'm just extremely certain that after studying the lineage of a ban like this, one would discover that no, it really isn't necessary. Maybe I'll go test that hypothesis later.
This is kind of a bullshit response, honestly. This is a very, very well plumbed, documented and reported on issue. The corollary to your statement about fences is:
"About which you do not know, be silent."
Car dealership laws may have served a purpose, but their primary purpose these days is to enrich car dealership owners:
http://www.npr.org/sections/money/2013/02/19/172402376/why-b...
http://www.americanbar.org/publications/franchise_lawyer/201...
Their passing will be a net gain for the consumer.
Why were they made before? Why does this not apply now? This whole thing seems to be lifted on it's own bootstraps, and I think the grandparent post and I want this paradox addressed.
> These laws that were passed to prop up car dealerships and came about in an era without mass marketing, but, very importantly, and self-acknowledgledly, these laws existed to prevent the manufacturer from undercutting prices offered by dealers - under the theory that dealers were of critical importance to customers for servicing and selling cars. Which is a combination of circular and dumb. And even if it was once true, because people could not comparison shop without the internet, it is now no longer true, because people can comparison shop with the internet and can visit manufacturers directly for servicing. These laws are literally anti-competitive monopolies that, if they never existed, would not need to be invented now to protect consumers. Instead they operate as enforceable licenses, dividing the country up into fiefdoms, in which each little fiefdom the local car dealer is the ensconced baron, operating with a monopoly on all original cars sales from that manufacturer in that territory - and if another dealer tries to sell new cars from that manufacturer in that territory, they can be stopped by the state and sued out of existence.
In other words, it was once thought that car dealerships offered critically important services to consumers - and even if that were once the case - and I deny that it was ever the case, it was just an excuse to pass these laws - it is no longer the case, because of carfax, bluebook, rigorously licensed repair shops, and car manufacturers that have figured out how to create and operate manufacturer owned dealerships.
This is the vestige of a bygone - and I argue, wholly credulous - era. It is a straight-up tax on the consumer, and it benefits no one but the car dealerships to make it literally illegal for two people to be selling new cars from the same manufacturer within the same territory. That is what those laws do - let that sink in, because that is fucking ri-goddamn-diculous. Car dealerships, and their territories, literally become heritable assets like a barony. It's insane.
And no, my sarcasm aside, the point about being silent in areas of ignorance was made out of frustration that because the person I was replying to was personally ignorant it meant that there was a bona fide debate in this area. There isn't. And it is pretty easy to do the research. I find all to common, however, it being a very fashionable and vogue statement for someone to make to prove how intellectual and cultured they are that, if they aren't familiar with an area of discussion, then surely there must be a legitimate debate to be had. Well, no. That is sometimes true, and very often not. This is one of those cases.
You will find two sides in this debate: car dealers and the people paid by car dealers; literally everyone else.
So, now Tesla wants to try selling new cars a new way. By allowing actual information (over the internet) to be freely available about every facet of their car. You like it, you try it in a nearby demo center, you buy it! Like so many other things we buy (like houses)
I'm pretty sure new cars don't need any protected status as a sales issue. In fact, most of us are pretty sure we're not getting responsibly informed by the car salesman in person. Just the opposite.
Lets say it out loud - car dealers think (know) they can make more sales by manipulating us in person. They fear a world where folks make independent decisions. So they make up any excuse to put off that future.
Conservatism is fine as mental shortcuts go, but we shouldn't take every mental shortcut available. We don't actually have to worry about shit that supposedly happened a hundred years ago, if we take the time to look at what's going on now. Right now, there are customers who want to buy, and producers who want to sell. Relaxing dealer requirements would allow those beneficial transactions to occur.
If we're so concerned that unspecified bad shit will happen because who knows it might happen, then simply put a time limit on the relaxed requirements. That is, the law could say that dealer requirements will come back in force in five years, unless subsequent legislation extends the period. In five years, legislators and lobbyists and maybe even the public can conclude "yes the world is exactly the same now as it was in 1920 so we need exactly the same laws", or not.
It's not like the information is unavailable. You don't have to mount an expedition to the Himalayas or anything. Just go look it up. You may well find that you still think these laws are bad and should go. In that case, you can rest assured in the knowledge that you now understand the issues better, and you're better prepared to argue your case.
Arguing that you should know why something was created before you remove it is actually the opposite of a mental shortcut. It's saying that you should do your homework before you make changes.
As other comments in the thread have made clear, the "research" has been done, and the ancient lore of how automobile sales were different from every other aspect of the economy a century ago has been rejected.
If the research has already been done and supports your desired outcome then why are you fighting it? The argument is not that these laws were enacted for a reason therefore they're good laws that should be kept. The argument is merely that you should understand why they were written before you argue against them. If you already understand that context then you're already doing what's being suggested.
Under this analogy, I think it's quite reasonable to question why we have so many of these very dangerous laws just lying around waiting to ruin someone's life. Absent very compelling and readily apparent reasons for keeping them in place, the default course of action should be to disable and remove them as quickly as is safe to do.
"A generation may bind itself as long as its majority continues in life; when that has disappeared, another majority is in place, holds all the rights and powers their predecessors once held, and may change their laws and institutions to suit themselves. Nothing then is unchangeable but the inherent and inalienable rights of man." --Thomas Jefferson on the dubiousness of pre-supposing that perfect and timeless wisdom guided anyone who's ever deigned to enact a law.
There are two fundamental issues here. 1) Why is commercial driving complex 2) Do we need a rent-seeking monopoly industry to solve the issues for us?
The answer for #2 is a resounding no.
We shouldn't be having this problem anymore. It's a massive detriment to the economies of scale model. Most people don't need to buy a car overnight, which ironically is because they are so expensive.
Keeping a small amount of cars for test driving and personal inspection is all that is needed. Then all that needs to be done is to batch up requests for production and shipping. Charge more 2 day shipping. Maybe Amazon can get into selling cars and same day deliveries for free with Amazon Prime.
Normally, you choose the options (color, engine options, leather seats, ..) and the car is built for you. You can pick it up some weeks/months later.
Manufacturers of high-priced cars may invite you to pick up the car at the plant when it comes off the line. They have a special "experience" designed around that.
This can happen in the US too: http://www.chevrolet.com/bowling-green-assembly-plant.html
That is most pronounced when orders spike after the introduction of a new model.
There are other reasons than just manufacturing time, for why a vehicle would take weeks or months to get.
So yes, 'manufacturing time' is likely not the issue, it's 'manufacturing capacity' that will bog you down.
To be fair, waiting time for a new Qashqai(which is a very popular car) is still 3-4 months, because the factory is that busy.
Why do you think that they didnt order it a few weeks/months ago?
Here dealers have inventory and sell from it. I know because we've had issues where people buy "new" cars that are in fact the previous years model that's been sitting in a warehouse for a while. This then causes confusion as they're first registered when they're sold, and the owner doesn't realise he has the older model.
Yes, indeed!
Both times I bought a new car, it was because my previous car had been totaled.
This would hugely complicate my day-to-day logistics. Is there no way to get a normal car quickly, the same day?
Sometimes it happens that you need a car immediately. That doesn't mean that you need to buy a car immediately. There are other options.
Imagine if your house burned down. You need housing right away. Are you going to say, "I need to buy a new house today"? Of course not. It's a huge purchase that requires a great deal of research and thought. In the unlikely event that you can find something you can move into immediately, you'll have extremely restricted choices and probably pay way more than you needed to. Instead, you'll find a hotel, maybe move into a short-term apartment, and take the time you need to find a house to buy.
Cars aren't nearly as expensive as houses (usually) but they're still expensive enough that the same ideas apply. You're going to own this thing for years, you can take a some time to get it right when buying it, even if you need something immediately.
At least right now in the US, there is no premium for buying a new car in a single day.
> It's a huge purchase that requires a great deal of research and thought. In the unlikely event that you can find something you can move into immediately, you'll have extremely restricted choices and probably pay way more than you needed to.
A car isn't anything like a house. Pretty much every house is different. The location of the house matters and can't be changed. House build quality varies tremendously, requiring in-depth inspections. There's a ton of paperwork to get through, with 24 hour periods on offers and counteroffers common.
Cars come off an assembly line. Every 2015 Honda Civic is like every other 2015 Honda Civic with some minor differences in trim that you can evaluate online or within five minutes of getting into the car at the dealership.
As long as you know what kind of car you want, which you probably already do, there's nothing to "get right". (Although there's things you could do wrong, I suppose: don't walk in and tell the salesman "hey I really need a car asap.")
Also dealers can co-operate and if one doesn't have the configuration you like, he may search for availability from other dealers.
When I bought my VW they had just recently (within past 2-3 years) changed to a packaged model for options where you had to buy options together, and packages were dependent on others in tiers. So e.g. if I wanted the xenon headlights or the 'kessy' keyless entry and start, I had to buy the option package with those, which I think also included an upgraded stereo system. This package required another option package full of other things I didn't want (sunroof, sat nav), so in short if I wanted fancy headlights I had to buy a whole slew of other things to get them. In the past I could have ordered those headlights separately. I ended up not getting any extra options.
I think what's going on is that they want to be able to forecast how much of each option they need, and they want to be able to turn around on a new car purchase quickly. If it was all custom, they either have to build it overseas and ship it - takes a long time - or they have to ship generic cars here and install the options somewhere else, like the dealership, where they have inventory and tooling and personnel costs issues. It's much easier to produce 1000 red cars with option package a and reduce choice for the customer, as long as they go for it.
Simply not true in America, at least the poor half of America. Perhaps most people don't need to buy a new car overnight. But a car? They do. Cars break down, get in accidents. You need to drive to your job or you lose it. You need a car.
That is, you pay, say, $50, and you get to try a bunch of cars or in general products that they have on loan from various manufacturers and get some guidance from the staff if needed.
Then once you figure out what you want, you buy it online and get it shipped to you.
Then there is no need to "protect" those shops, since the customer is paying precisely for the only value they add, which is the ability to try out things and ask for advice, and in fact the value of the advice would increase since there would be no conflict of interest.
What should happen is the car manufacturers buy out the best dealerships and simply sell the cars direct. It'll allow them to optimize their distribution and inventory channels and give them a bigger margin overall. It's going to put many dealerships out of business but it's an old business model that no longer works in the world; you can't expect to keep it afloat when there is no good business reason for doing so.
The legal system in place was a precondition for the development existing American car dealership network, and I doubt that the dealerships are going to go down without a breach of contract fight.
Isn't that always the case? Regardless, cutting out the dealership gives the car companies more margin for this stuff and possibly lower prices for consumers (possibly though probably doubtful).
I've read several stories of founders for example hearing people say "I'd buy that" etc, but in practice they found out nobody would bother with their product/service, it solved a non-painful enough problem, etc.
Paying for checking out cars to buy seems like one of these things.
As for why it hasn't spread further, I imagine it's partly because a lot of people go into a car dealership expecting to apply their (they think) leet negotiating skills and will walk if told that the price is the price. From the dealer perspective, bargaining is also an opportunity to price discriminate. Given that dealers don't in general make a lot on new car sales, the best answer is probably that it's the system everyone is used to.
It's the same with people thinking loyalty cards are good for them while banning that would actually benefit them.
Make the car -> sell the car
Sell the car -> make the car
This switch should have happened a long time ago. The near total elimination of the vast inventory system. It would make most automakers dramatically more profitable.
Dealerships should be replaced by small automaker-owned sales venues, stocked with one of each model for test driving purposes. Customers order their car, with some limited customizations. They come back in a week and pick up their car, and save 20% off current prices. The automaker never builds a car that hasn't already been sold.
Most of Toyota's profit comes from just a few best selling models (that tend to be their best selling models year after year). That's where you'd start on this type of automation, and you'd invent new manufacturing technology accordingly as necessary.
The criticism I see most often on the concept, is that it'd be challenging because our manufacturing processes are pathetically ancient. I agree: it's time to move manufacturing into the future. It's not a question of if it can be done, it's: who is going to do it first.
The actual integration part isn't the problem, I don't believe. The dealers themselves could probably do that with a little help and some changes if you could deliver them a crate of all the parts. When you buy a Honda accord, there are at least 3 different power train options, a 4-cylinder manual (do they still make this?,) a 4-cylinder CVT, and a 6-cylinder automatic; and Honda has been amazing at actually reducing the number of options over the years. Do you build the power train on demand or do you attempt to forecast sales and stock an inventory? That's a very significant part of the overall cost. Many of those parts are forged and then machined both, just building the head takes some time and precision, let alone assembling it... there are interior changes that have to integrated as well, from the dash display to things like paddles for shifting in some formats.
With a lot of modern cars, I wouldn't be surprised if the rolling chassis for the different models is very nearly the same but subtly different depending upon the power train. Toyota has the highlander, it's a very popular platform, it also comes in a hybrid configuration, I suspect that are more than just some subtle changes to a lot more parts for that. Same with like an all-wheel drive as an option type products... or convertible roof. I think the navi-option on some mass market cars results in a different dashboard molding.
If you limit "options" to color and seat materials, this is an easy problem. The auto industry practically invented options though, like Ford and Lincoln and Mercury were the same vehicles for a long time, the fake options helped sell way more product. Today when you buy a Camry, it's almost like there are four or five entirely different products that are all labeled "Camry" from like an entry level spartan 4-cylinder edition up to the hybrid limited that costs nearly twice as much. The market seems to like that. That's the trick, if you could some how convince the buyer that they had real options but they didn't... Maybe electric motors are a big part of that, take performance off the table as an option and things can be made more simple.
Custom configurations on the other hand can take weeks or months to get from the factory to Sweden. Those who know what they want pre-order a car so that it's delivered when they want to replace their current car, which is usually every 3 years.
I bet Dell still keeps an inventory, it's just a vastly reduced one.
That's pretty common. I can walk into an Apple store and walk out with one of a variety of models. However, many memory and disk configs will have to be special-ordered and I'll have to wait a couple of weeks.
I expect if car selling moved to more of a BTO system, you'd see dealers/factory stores stocking some level of popular model/trim package/color combinations but everything else would be weeks to months to get.
I am not familiar with the industry, how long does it take to make a car and deliver it to the customer (let's assume to a major US city)?
I think a custom vehicle ordered from a sales outlet, could be completed within 2 to 3 days, and shipped out, available to the customer within 7 to 10 days.
It would require pushing manufacturing forward in numerous ways, and retooling the entire process of making a car for this business model, but there's no reason that can't be done. It would already exist if the laws allowed for direct sales.
According to Bob Lutz having car dealerships is a pro. LOL, I am yet to talk to anybody who actually enjoyed the car dealership experience weather it's buying or servicing the car. The whole car dealer enterprise is a rent seeking business. In many states you cannot have the manufacture sell the cars directly. That's changing slowly -- thanks to Tesla -- the dealer lobby is a big contributor in many local and state wide elections. The pricing for the automobile / features is not clear to begin with. It's to the point that there's many competing business that try to give you true car pricing. And, every step of the way the dealership tries to extract another fee / charge for you via various tactics like destination fees, myriad of financing fees, unneeded insurance (tire insurance, ones that overlap with the manufactures warranty).
Personally, I would love if the dealership model died. The alternative being ordering a car online and having it show up at home at a scheduled time. I imagine the same experience can be replicated the other way when the car needs servicing, schedule it online and have it picked up / drop it off and a point of aggregation of the car maker where they handle volume.
And before you tell me about the test drive and getting a feel for the car. Meh. Your fooling yourself if you think that a 15 minute test ride will tell you much about the cars performance, comfort or even layout. You will only learn that the seats are uncomfortable on a 3 hour trip once you take that 3 hour trip. If a test drive is really important to you, you should really rent the car for a couple days.
One could also make the argument that dealerships should go away based on their general discriminatory tendencies. Here's a recentish paper quantifying it: http://islandia.law.yale.edu/ayres/Ayres%20Siegelman%20Race%... . The quantify how much more dealerships by different gender / race. The recent book named Phishing for Phools dedicates some time to this topic as well.
This what we do when we are car shopping. Normal cycle is to start looking when the existing car hits the 8% mark in unscheduled maintenance (or 150K miles) (your percentage may vary). Once we close in on the model we like we find a rental and drive it for a week. If it passes we find a dealer, get the model and what we want on it and then shop that info around between multiple dealers in the area.
We never use the existing car to trade in since most are 10 years old and have lots of mileage on them. When we pick up the new car we will offer it to the dealer as a trade and decide at that point if we want to sell it to them. Last cycle the dealer said he would give us another $200 off the deal if he didn't need to take the trade.
Dealers carry a large inventory because it works. People (for the most part) want to pick out their specific car and drive it off the lot. They form an emotional connection with the car before they own it, and the dealer needs that emotional connection to close the deal. Going factory-direct with a wait time of several days would snap buyers back into logical reality, and car companies do not want that.
Because a regional car dealer with $X0 million of revenue cannot compete with a multinational car manufacturer with $X0 billion of revenue. Any time a manufacturer didn't want a particular dealer around anymore, they could simply drop their prices and drive them out of business. That's not a healthy dynamic for a business relationship.
One could argue - and I agree - that the best way to handle this is via the free market, and let manufacturers who do this sort of thing gradually lose their distribution network due to lack of trust. But the short-term collateral damage is high-profile bankruptcies, unemployment, and high auto prices.
When you buy a show-room car, or an in-stock car (km 0 car), you expect a significant discount (10 -> 20% off) over the discount you generally expect (i.e. not much nowadays except maybe free metal paint or free alloy wheels upgrade)
There are few generalist dealer that do multi-brand dealer where you buy in stock car. The interest to go to those dealers is that they indeed have the car in stock and generally with a good discount over the factory-direct sales, or provide configuration that are not available in your country[1].
[1] Factories provide different pack and dependencies between options is different EU countries. For example, a car I was looking at requires luxury electric seats in order to install 360 camera in Belgium. It is available as a standalone option in Spain on most trims, but is restricted to the most expensive trim in the UK. The EU is weird like that.
If you advertise something as $X then that is the maximum total amount you pay (tax-inclusive, all fees, etc.) Almost every other developed country does this (except for hotel stays and some large ticket items, like houses and -- ironically -- cars, but we can do better, right?)
Now, I can imagine a sudden wave of protest -- but wait, what about state-wide or nation-wide advertising campaigns -- this happy meal for only $2.99? Sales tax varies from county to county, and then there are crazy exemptions, tax holidays, etc.
EXACTLY. If you believe in markets then you should, at minimum, believe in price transparency. (Free markets assume perfect information -- how perfect can your information be if you can't even figure out the true price?) If this puts pressure on states and counties to simplify their tax rates (under pressure from businesses) then GOOD.
If the prices that get advertised have to be real prices you get a huge improvement in market behavior -- from real estate to healthcare to cars to food -- immediately. And it will effectively demolish most of the issues with car dealers since they'll need to quote actual prices.
http://www.edmunds.com/car-buying/confessions-of-a-car-sales...
The RIAA has a vested interest in keeping "direct to consumer" models sidelined, or, once enough critical mass is achieved, to bring that artist/group into the fold. In reality, the RIAA system spends a lot of money on behalf of artists/groups, in a similar notion that car dealerships are at the forefront for manufacturers and brand stability. Sometimes dealerships go bust, sometimes labels go bust...sometimes dealerships do so well they become multi-million dollar enterprises (Don Huffines in Texas...now State Senator Don Huffines), and same goes for record labels (Big Machine).
Both the dealership association and the RIAA push very hard in lobbying for their own ends. As can be seen in the music industry, fans nor artists haven't exactly jumped ship away from the RIAA system. There may be some similarities in the dealership scenario, but time will tell.
Doesn't seem complicated to me. The US system just warehouses inventory on dealer lots. Maybe because it's feasible due to geography.
Allocating inventory based on prior year's sales is just a way to provide growth incentive to dealers. They don't make much money on new car sales but they do make money on the volume of retained service customers, which is indirectly related to the aggregate of new car sales from prior years. So to make money in the future, the car dealers need to expand new car sales today.
Increasing sales is what the manufacturer wants.
This all seems like a pretty nicely worked out system, if you ask me.
Abstract: "We spend a month at a Jeep dealership on Long Island as they try to make their monthly sales goal: 129 cars. If they make it, they'll get a huge bonus from the manufacturer, possibly as high as $85,000 — enough to put them in the black for the month. If they don't make it, it'll be the second month in a row. So they pull out all the stops."
Dealer direct, sounds good. Until you find out that car you really want has a demonstration center that is too far away, in a place you don't want to go. Until you find out repairs are done at an authorized shop that handles so many brands they cannot get it right. Until you have serious problems with your car and that manufacturer is so far away they can ignore you for a good amount of time... and so on.
While not everyone has a good experience at a dealer I have never had a bad one and considering the number of vehicles I have gone through, well. Dealers aren't there just to sell cars. They they maintain them, they work to keep you happy so you come back. This means they act as go between consumer and manufacturer and can often push the manufacturer to fix things they might just overlook.
Tesla is fine as it is now simply because they don't sell enough cars to matter, let alone to the majority of people their cars are not affordable and the customers who do buy have the time to go anywhere they need to to buy a car or even have someone go get it. When, and it is a very big when, Tesla has any real volume let us watch how they handle problems
The customer is the one that should be able to choose between a cheaper price with a lower service, or a higher price with more service. The problem here is that companies want to provide the cheap alternative but aren't allowed to do so.
If a dealer cannot compete with a direct sale company on price and service, doesn't that make their business model flawed/outdated.
If a society flips and completely changes the economic/legislative landscape under which companies operate, it creates a very unstable business environment and discourages capex especially.
This would not be good for the long term economic health.
What you have in car dealerships is a classic example of regulatory capture [0], where most people don't buy a car that often, so they're not particularly focused on dealer laws. But dealers have all the incentive in the world to lobby for restrictive rules. And, since dealers are by their nature distributed, and often have the proceeds to be "good community citizens" (e.g., sponsor a little league team), their views have even more weight.
What about the jobs? Is the argument that they don't serve any legitimate purpose, such that they'd go away if they're not forced to be kept around through legislation? Jobs aren't a good reason to favor stagnation over dynamism in an economy. Improvements in productivity have led to drastically more jobs over time, rather than less, the same would be true in this case. Plus, the existing dealers would continue to have a leg up on sales and distribution, it would take a long time to build out any competing systems.
Whoa. Nobody is "taking over" the dealerships. What is being discussed is changing the laws that protect their monopoly.
Modifying the law to allow Dis-integrated deliver of sales and service is not going to mean a massive loss of jobs. Dealerships still have huge services businesses that will continue to thrive.
As I understand it, local sales taxes are paid to the state where the sale is made. I assume every state has lots of car dealerships, but only a few states have car manufacturers. This would mean that if everyone started buying their cars online direct from the manufacturers then the taxes would go from being distributed around the country to being concentrated to a few states. Surely those states without manufacturers would lose a lot of sales tax if this happened, so would have a strong incentive to oppose such a change.
However, like TrisMcC says, most states assess Sales Tax when you register the car in the state. So if you bought a car for $50k in Oregon (no Sales Tax), but then registered it in California (7.5%+ Sales Tax), your registration fees would be the standard fee + $3,750. If you bought your car more than 1 year ago (in California at least), you don't owe any sales tax and if you bought it in a state with lower tax, you just owe the difference.
For big online companies, we've started mandating that they collect sales tax on behalf of the customers, so for instance, Amazon now automatically collects sales tax based on where your billing address is. If direct sales were allowed, there'd surely be legislation to ensure that the manufacturers collect the tax for their customers.
Find a jurisdiction anywhere in the USA where direct manufacturer sales are legal. Negotiate with the manufacturers to handle direct-to-consumer sales for them. Write your "app" so that customers can build their car online and have the order go straight to the factory. Charge the customer a "delivery fee" to get their heavily discounted car to them, from which you make your profits.
Seems like a lot of work, and a lot of fighting with a lot of bureaucracy, but that's what all these "disrupt the industry" startups like to spend their billions doing. I'm surprised that nobody is doing it today.
As in, found a startup and then negotiate with Ford, GM, Toyota, Volkswagen etc about a deal that's guaranteed to piss off the existing dealer networks that make ~100% of their revenue and will view this as an existential threat? Good luck with that!
Above all, this seems to assume car companies are stupid. Ford, GM & co would sell their grandmothers to get an extra 6% margin on their cars, the reason they're not selling directly already (in the US) because they figure it's not worth the risk -- and if they do decide to try, they're certainly not going to give the opportunity to a random startup trying to form a new monopsony that would leave them even worse off than before.
In the context of what you've written, though, can you explain why Tesla chooses to sell directly to consumers?
They have the ability to sell through dealers, just like the established automakers. And it would cost them a lot less money and hassle to do so.
Why then would they choose to sell direct if not that it actually made good business sense to do so.
Not in a world dominated by fossil fuels. This is worth a read: http://www.teslamotors.com/blog/tesla-approach-distributing-....
And like Apple -- on second thought, much more so than Apple -- they're a niche producer and can cover a good chunk of their potential customers with only a few stores. For example, here in Australia, they've got two (2) stores for a market of 20+ million, consisting of one each in Sydney and Melbourne, while (eg.) Toyota has 36 dealerships in Melbourne alone.
Like Uber/AirBnB care for what is legal or not... In fact, I would say that the prototypical "Uber/AirBnB move" is characterized by a businessmodel that is just over the edge of what is legal.
Heck, this is basically what I did the last time I bought a car. My local dealership in MA treated me like shit, so I called up one in NH, told him over the phone what I wanted. When I got there, he had the order ready to go. I signed some paperwork and gave them a deposit. 6 weeks later my car showed up. Make that an app and save me a drive to NH and I'll pay $1000 premium.
Hiring a car transporter, negotiating time and date when one can be home to accept the vehicle, signing off the paperwork - all of this is overhead someone (most likely you, the consumer) has to pay for.
So at some point a new economic model emerges - you buy a large parking lot to stabilize the storage costs and minimize expense on car transporters, you hire someone to inspect and sign off on the delivered vehicles, and you start ordering cars by a dozen to spread out that vehicle delivery cost...
Manufacturers hate dealers. It's mutual. The only reason consumers don't hate the manufacturers so much is that they have never had to deal with them directly. Dealer protection laws are there because manufacturers have a long history of trying to steal from dealers, cheat them, and put them out of business at whim. Those are the manufacturers that consumers are asking to deal with directly. I'm sure they'll treat consumers better than they treat their business partners!
That doesn't justify them. I thought the US is supposed to be anti-regulatory? Why didn't dealers handle this by becoming primarily multiple-manufacturer and thus able to switch to or favor a different manufacturer at whim?
George McGovern - politician turned entrepreneur - wrote one of my favorite articles on the subject in 1992:
http://www.wsj.com/articles/SB100014240529702034064045780705...
The fact that states outside California did not go to war to save their local Best Buys when Apple started selling direct, or states other than Washington go to bat for their local Borders bookstores when Amazon appeared (though there has been some rejigging of state sales tax laws around that) suggests that if the same situation were to occur today, in a less regulatory minded era than the early 20th century, states might be less concerned about trying to prevent Michigan car companies from driving their local dealers out of business.
I don't think that reasoning explains the situation. Their cars aren't even that good, especially earlier production models and their several problems:
Not to doubt car dealers' reputation for honesty and integrity, but what's a good resource to read up on offenses the manufacturers have committed?
Sounds like what any company leader would say, and/or Kool Aid assisted fan.
If long term profits weren't in aim, they'd could not care less about that "terminal goal".
And conversely, I wouldn't say other car companies don't have a vision and don't want to make the "best possible car" (BMW, Mercedes, ... Ferrari, etc), just have other constraints to what's best for their buyers.
Not that I don't think it is time for an overhaul or other models but ignoring history would be churlish.
You pay for the inventory costs of spoilage in other industries!
No need for anything new, just find the sanest country, and copy their laws.
Why can't you do that in US?
The idea that tension between manufacturers and the shitholes that are dealerships will somehow translate into tension between the manufacturer and buyers is ridiculous. Why would the $15/hour salesman be affected by this at all? He wouldn't be.
I don't really understand this. You won't have to make them perform service. Dealers love performing service. It's where they make their money. The car sales side mostly exists to drive business to the service side.
Deliver inventory? If they can do it better than the manufacturer, sure. If they can't, then why should that side exist? Whoever can do the best job should be the ones doing it.
Take your trade-in? Most places just sell your trade at auction, and make a profit on it. I don't see why they would stop this, or be unwilling to do it.
Either independent dealers provide value, or they don't. If they provide value, they should be able to survive in an environment where manufacturers are allowed to sell directly to customers. If they don't, then why are we keeping them around?
https://www.youtube.com/watch?v=uMWmYJOa-BM&list=PLZxWJ6CTr6...
Oh, this time I tried Truecar first, but the fleet manager price was lower.
Integrate the best supply chain management, best logistics, best customization processes, best personalization processes, best servicing processes, best retail sales force, best legal compliance/adherence processes.
Then look at how to make a giant iPod on wheels then deploy.
A single car has ~30,000 parts.. an iPhone has, what, a few hundred?
Why is it a given that Apple is going to be successful at doing something that they've shown no skill in actually doing?
Remove the combustion engine and its related systems, don't get beholden to legacy, and how many parts will a battery operated car really have?
To an ambitious team backed with plenty of money and expertise this is their dream come true.
>Let's take money out of local communities and place even more wealth and power in the hands of wealthy megacorporations!
HN truly disgusts me sometimes.
People vote with their wallet against the local corner store and pro Trader Joe/WholeFoods, against the local radio shack and pro Amazon/Newegg, against the local carpenter and pro IKEA. Their lives are better and they are wealthier for not having to spend $50 on a HDMI cable or $800 on a kitchen table.
This is just going to result in capital flight from local areas, directly making them poorer. Unless you're a major shareholder in one of these automakers, by advocating for the deprecation of locally owned dealerships, you're advocating for making yourself poorer.