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Comment by cosmie | Hacker News Reader

Cadillac (and other auto manufacturers) structure their program to include dealerships, rather than to cut them out. The sale gets booked against and delivered by a local dealership, rather than Cadillac the manufacturer.

Tesla does not have an independent franchise/dealership model, and all of their local presence is corporate owned. This is what all the automakers have been against, as there are a rats nest of local/state laws that require legacy automakers to not compete with/cut out their dealerships with direct-to-consumer sales, but Tesla has avoided that impediment by resisting having to adopt the sales framework the legacy manufacturers can't legally get out of.

That said, manufacturers would love to be able to adopt Tesla's model; dealers are the ones that hate it as it's an existential threat. Manufacturers are only against Tesla's model to the extent that they're not legally allowed to adopt it, so consider it an unfair advantage.

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I doubt that most mass-market auto manufacturers want to move away from the franchise dealer model. It's tremendously capital intensive. Tesla can make it work since their cost of capital is so low. Where would Ford or GM get the billions in funding to run thousands of dealerships across the country?

Having worked at an OEM and in automotive I can tell that what you’re saying is simply not true.

Where would they get the money? From cutting out the middleman, from increasing sales by offering an alternative to the terrible dealership experience (spending 1-2 hours buying a car is not ok) and from gaining the flexibility to offer alternative business models (i.e. subscription models).

Dealerships are the past. They may very well be the deadweight that will cause incumbent OEMs to sink rather than swim.

If any of the major manufacturers were stuck with the entire inventory their dealerships are sitting on right now, that would sink them.

That’s what’s happening. The article mentions that exact scenario.

For every vehicle on a ship or stuck in port there are at least a dozen sitting on a dealer's lot.

Because capital is extremely cheap in low interest environment?

They would want to cut out the middlemen car dealerships.

The other key insight of the Tesla model is recognizing that three three traditional functions of a dealership don't actually benefit much from being colocated— which is why Tesla puts the showrooms in shopping malls, does the sales online with flatbed delivery, and locates service centers on marginal lands in industrial parks where it's easy to have a big parking lot and hold lots of parts inventory.

The legacy manufacturers could absolutely copy this approach and would love to do so.

I'm not sure, where you live, but here (Europe) car dealers are generally in the kind of urban sprawl, where industry and shopping malls are located as well. And the typical lifestyle brands have a lot of show-rooms in inner cities as well – for all the others I doubt it's necessary... People will buy used anyway...

It’s not about suburban shopping malls, it’s about urban ones.

Traditional car dealerships need someplace to store all the new and used cars which quickly gets into hundreds of cars sitting around. Showrooms on the other hand can get away with representative samples which requires vastly less space. That means they can afford locations with vastly higher costs per square foot.

> I'm not sure, where you live

This discussion is about American auto dealerships.

Seems useful to compare the dealership experience to how it works in other countries. In the US, the dealership experience seems to be pretty bad for many people, at least it was for me and everyone I know through several car purchases. It hasn't been the same experience for the several cars I have purchased after moving overseas. Not sure I could pin down the reasons why. It might be the same reasons that the service you get from banks here is so much better.

I bought my Tesla from the showroom collocated with the service center, and picked up the car from the same location.

Interesting, where was this? All the showrooms I've seen are strictly that and not even legally able to sell you a car. All they can do is "help" you access the website and buy it yourself online.

Almost all automakers are connected at the hip to a capital arm, so I think if anything they'd be unusually well positioned to take on the capex of building out a distribution network. Consider, by analogy, that banks and credit unions are unusual in commercial real estate for almost always owning their own buildings, for the same reason.

Where do you get the idea that Tesla has a low cost of capital?

Both Ford and GM have substantially lower WACC than Tesla. The figures are public.

I'm not sure if the manufacturers are against it. It is complex. Dealers are the human face of the company. Someone to talk to in your town if things go wrong. Assurance that there is a mechanic that can fix it if something breaks (not just the engine, there are many other parts that can breaks. Assurance someone will be able to get the parts you need.

That doesn't means they have to like the dealer model, but there are real advantages to it.

All those advantages could be provided by the car company owning all the dealerships that sell their cars, except it would be cheaper for both the car company and customer.

Why do you assume it would be any cheaper for the customer? I think it could actually increase prices by reducing the number of sellers in the market. You would have a single retailer for each brand.

Here we have a single retailer for all the brands. One group owns most of the dealerships.

(which is some sort of regulatory problem probably, the point is that it is the status quo for there to be a dealership oligopoly in many areas)

This is simply not true. There are thousands of independent car dealerships in the US. There might be a local monopoly in a town, but you can always just drive a few miles over to the next dealership.

How is "local monopoly in a town" substantively different than "oligopoly in an area"?

It's not really super convenient to get service 60 miles away.

Tesla makes people drive hundreds of miles and that doesn't seem to have hurt them.

Worse, Tesla is effectively a a national monopoly. And that's far worse, because it has no competition for sales of Tesla vehicles or service.

If the manufacturer could raise prices without losing sales to other brands, they would do that already. Eliminating the dealerships removes a middle man and the corresponding overhead.

The manufacturer might like to claim the entire savings, but there are two reasons that typically wouldn't happen.

First, then the manufacturer's margins are higher, which changes the calculation of how much margin to sacrifice to increase sales volume. If before the manufacturer was making $2000/car and the dealer was making $2000/car then the manufacturer lowering the price by $1500/car to double their sales isn't profitable; double $500 isn't more than $2000. If the manufacturer is now making $4000/car by cutting out the dealership, lowering the price by $1500/car to double their sales is worth it; double $2500 is more than $4000.

And then second, because the competing manufacturers would have the same incentives under the same circumstances. If they lower their prices by $1500 to double their sales, that's coming at your expense if you don't do the same.

Thanks for the thoughtful response, but I don't agree with the reasons you stated. If we don't see a race to the bottom today, why would we see it in the future?

According to this [1], new car dealerships have a profit margin of 1-2% while auto manufacturers have a profit margin of ~10%. Anecdotally, some dealerships have no profit on vehicles, and rely on services contracts to drive profit.

I interpret this to mean that there is significantly more competition between dealerships than auto-manufacturers. If a consumer wants a specific brand, they can choose between dealers and often will travel long distances to get the best price. When a dealer buys a brand, there is a single supplier with global monopoly.

I think the disproportionate share of profit already going to manufacturers also undermines your argument on the trade-off between sales volume and splitting of profit.

I'm not sure it would be cheaper. The car company needs to pay all the people in the dealership plus back office staff to manage all those dealers. It might or might not be cheaper. It is for sure a distraction from their real job (design and assembly of cars and engines)

You could easily move to a no-haggle model at that point. You also cut out a middleman business that wants profit on top of your profit. Yes, you have to pay those end sales people, but you don't pay the profit of that dealership owner.

Coming from a country which haggles all the time (India), and seeing the in general no-haggle culture of US, I was always surprised car purchase is one of the areas where haggling is culturally acceptable.

Haggling is acceptable in Canada/USA with most large purchases. Cars, houses, hand-made furniture, bulk purchases, building leases, etc. Haggling is generally not accepted only when it doesn't scale well, which also has the advantage of greater transparency and fairness in those cases.

In line with the above, private sellers are generally amenable to haggling because it doesn't matter that it doesn't scale. So when buying a used anything on Kijiji, haggling is expected, particularly if it says "OBO" (or best offer), but not if it says "firm".

If the price is set semi-arbitrarily at the time of purchase, like some U-pick auto junkyards, the person setting the price is right there anyway, so haggling may be acceptable.

I haven't researched any of this; this is just my intuition from experience.

This matches my experience; I think some Kijiji sellers do get haggling fatigue after a while, where they've dealt with one too many tire-kicker types who show up offering 50% (or less) of the listed price. Or play other games, like agreeing on a price and then showing up short of cash and making a scene about having to drive back out and find the nearest bank machine. I had this happen once and stood my ground over it; suddenly the missing $20 miraculously appeared with no ATM trip necessary.

Anyway, being able to advertise a price as firm does provide a convenient escape hatch in that scenario.

The difference is that the dollar value of time in America is higher. So while an Indian may haggle over a bag of lemons because the rupee value of the lemons vs. time is what it is, the American won't.

You'll often see this when selling used stuff in America. Poor people will haggle to the end of time because every dollar matters to them - something that manifests in selling something at a higher price being more risk-free than selling something at a lower price. For the same reason, if anything goes wrong with the used product they will be upset with you. Because every dollar counts to them.

I throw away cheap stuff instead of Craigslisting it because of the danger of it only being worth buying to poor people.

By the way, Americans prefer calling it 'negotiating'. You 'negotiate' a lower price, you don't haggle things down to a lower price.

I despise firms like carmax, where they promote their "No Haggling" as a feature, whereas I see it as a bug.

They're baking in a fixed profit on used inventory and the customer has no option to impact their profitability and reduce acquisition cost. Now that I think about it, I am going to buy long terms puts on their stock,as this event should completely destroy their business.

There's also the protection added to the MFG by layering.

Consider every dealership horror story you've ever heard. Both from customers -and- floor employees.

In both cases, having all dealerships across the country owned by the MFG means there's larger pools of workers to unionize, and a greater risk for a class action.

Sympathetic to the focus argument, but the cheapness thing? Are dealers negative overhead in some way right now?

They probably are, because they manage themselves. Most dealers are not making money on sales : everybody comes in after checking Edmunds, kbb, and the like so they know what the dealer actually paid and don't want to pay more than that. The real money in selling cars is you can sell service and parts (you get first crack at all the first year service) . None of these scale to being run from headquarters, the mechanics need to be in each city. Dealers also do local advertising, something that is more expensive to run from headquarters just because local people have an intuitive feeling for what works locally and don't need to buy as much research.

I realized recently something that set me firmly against ever going back to the dealer - while I could afford their repair rates when necessary, they aren't able to figure out obvious problems, or don't want to bother, and the service advisors are on commission.

For years, I was aware of the cracks about "stealerships" and I didn't pay much attention, because I figured you get what you pay for and hadn't found a good independent mechanic. But I happened to see a help wanted ad for dealer advisors that mentioned commissions, about the same time as I had paid for an expensive repair on an out-of-warranty vehicle after dragging my feet quite a bit.

Maybe this is naive, but I genuinely did not know about the conflict of interest, and I expected the half of the dealer that sold (used) luxury vehicles to be no more predatory than the half that sells regular cars. On purchase, I figured, meh, I can afford the repairs, but I didn't count on paying for ones I didn't need and having ones I did ignored.

Wait I'm a noob, so your dealer is also your mechanic shop? And the mechanics make a living by earning a commission out of your repair invoices?

Yes, dealers also perform service, even beyond warranty items. The mechanics may not make a commission, but they are usually not the people talking directly to customers at a dealership. Instead, they send a "service advisor" that may or may not have any idea about cars. This person's job is to make money for the dealership and it isn't uncommon for their compensation to be commission based.

There are conflicts of interest everywhere in this process, as you might imagine.

the split between service reps and the actual service department is another reason I don't like having service done at the dealer, it's annoying having the service rep have a hard time interpreting notes written by the mechanic that worked on it, when at an independent shop you'd just talk to the mechanic.

But most dealerships are set up with a "service bay" that's just the desks of the service reps and a couple of parking spots, then after you leave they drive the cars around back to the actual service department. There's total isolation between the customers and the people doing the work. I suspect they might consider this a feature, "white glove service" or something, but it's irritating when you e.g. bring something in for diagnostics, and then get the diagnostic report from someone who doesn't understand half of it - an experience I have had repeatedly taking my lemon of a Nissan to the Nissan dealership because no one else in town has the stupid Nissan proprietary diagnostic computer.

Seriously, when I brought it in to have them figure out a problem that had been frustrating me for a while (I do most of the work on my cars myself), they confirmed my suspicion that it was the fuel pump and maybe saved me the work of replacing the fuel pump when it wasn't the problem. But, the service advisor also told me they recommended replacing the entire steering rack (!). When I asked why, he seriously struggled to come up with an answer, and just said something about it being worn. Really? the quoted rate on the replacement was more than the car was worth, and he didn't even know why they were recommending it.

Now I think I need a stability control reset that as far as I can tell only the dealership can do. I've really been avoiding bringing it in as I know they're going to charge me at least their $170 diagnostic rate and probably write me a quote for over $8k in work again, all for something that apparently takes about 30 seconds if you happen to have a Nissan CONSULT II.

I've had nothing but good experience with my Honda/Acura dealer. The rep/mechanic relationship is just like the waiter/cook relationship. It saves the mechanics' time so they don't have to deal with billing and explaining stuff.

At the same time, I've had no problem asking to go directly into the shop and talking to mechanic while pointing at the part in question.

There you go - I trusted the Honda part of my dealer, but my Honda had a bunch of problems under warranty, didn't cost me, but made me ask why not drive something more interesting, and there were BMW, Mercedes, and Mini under the same ownership, next door. So I thought, eh, the difference in reliability is exaggerated, I'll get a used German car for peanuts, considering the extreme depreciation, and be dealing with the same people. I don't regret buying an out-of-warranty car (yet), but I didn't realize that once they assessed me as someone who makes poor decisions/is reckless/has too much money that they would not treat me the same as with the Honda. Or maybe it's just separate management.

So I conclude, as everyone says, you got to do your own work as much as possible on an out of warranty European car.

No, the service advisor, who is not the same person as the mechanic, is on commission. I thought this person was just like a receptionist/clerk, but it is actually a sales job, at least at a manufacturer branded dealer in my area.

One reason I didn't realize this is because I used to drive a pretty mundane vehicle under warranty, so they never recommended anything grossly unnecessary.

Even independent SA are usually on commission. Dealerships are still a rip-off though.

> Dealers are the human face of the company. Someone to talk to in your town if things go wrong. Assurance that there is a mechanic that can fix it if something breaks (not just the engine, there are many other parts that can breaks. Assurance someone will be able to get the parts you need.

Basically all of those things died with the rise of the internet, because you then have direct access to the manufacturer via their website and could order parts and have them shipped to you. It would also be a lot easier to find a local mechanic if the manufacturers would publish the service documentation for their vehicles on their websites, which they don't do primarily to placate the dealerships who don't want the competition.

It's almost surprising that you can't buy cars on Amazon yet. You can buy cars on eBay, although presumably not direct from the manufacturer as a result of the nonsense dealership laws.

Amazon is actually quietly looking into this, but they are doing it through AWS so as to not attract attention

Can you give reference that AWS was after car selling business? I only know there was AWS engineering platforms for automotive industry.

Carvana is the Amazon equivalent for cars, however, they sell used cars only.

You can do Renting/Leasing of new cars in Amazon.es (Spain)

https://www.amazon.es/Renting-Coches/

I live in a building in (Bay Area) Oakland Chinatown.

A phrase the older Chinese folks use a lot in my building is "the older generation" or "the younger generation". As in, "the younger generation likes buying things online", or "the older generation prefers making a phone call".

It's made me think more generally about generational differences and how they affect buying patterns, and patterns of doing business generally. I realized, for example, that I really can't stand dealing with contractors (e.g. HVAC) in the older generation who refuse to use Google Calendar or email, and insist on doing everything over the phone, and face-to-face.

I think this "human face of the company" is a good example of a generational difference at play. I categorically do not want to interact with anyone at a dealership. I get product information from word-of-mouth/friends, YouTube, and other sources. Provided a company put some money into creating a customer experience that offered the same level of customization you'd get from a dealership experience (color, trim level, etc) I would be the first person to make a $20-30K purchase online. Not least of which because I'd be confident they'd have built a system not to fuck up my order vs. however it would get input by the person at the dealership who inevitably needs to enter it into the OEM's system to order it.

More and more it feels like I'd rather just rip the humans out and deal more directly with a company's back-office systems (e.g. for placing a car order), than have to play a giant game of telephone explaining something, only to have a human screw it up when entering it. It also annoys me when I call customer service and they remind me 20 times that I should use the website. Of course I should use the goddamned website. I wouldn't be calling customer service if I didn't try that first. This is probably something that won't change until people now in their 20s/30s are in positions to make these decisions in companies, at which time there will be some new trend the "oldsters" don't get. So it goes.

You must be a millenial. No worries, a Gen-X'r here, and I enjoyed buying our last two cars at Cartelligent (Sausalito). Pay a small fee, and have the car delivered to your driveway, sign paperwork, orientation and away you go.

“Did you know you could visit our website at w[long pause]w[long pause]w”

The whole distributor model is antiquated. For cars, for alcoholic beverages etc...

Honestly, excluding the absurd situation with car dealerships and the laws they managed to get written for themselves, I'm rather glad most things still have local distributors.

It forces companies to have many more local points of contact as they otherwise would, which improves customer service. For example, with my HP laptop, I ordered it and all accessories locally and in my language, can have it serviced within a few days at any of 3 locations in our country, have someone that I can argue with in my language when they inevitably try to claim the warranty was void somehow etc.

If HP had chosen a direct distribution model, I would've had to order it online, send it halfway across the continent for service and have absolutely nobody to talk to in my language to in case of non-standard issues. We saw that exact with Apple some 10 years back, when it was impossible to get an iPhone from our country, because it didn't seem worth it to Apple, while Samsung and everyone else gladly threw phones at our distributors and watched the money pile up.

Hmm you didn't like Apple's service?

I bought a Macbook with Applecare. I had a problem with it and brought it to an Apple store. My data was backed up to the cloud so I had no issue surrendering it. I walked out with a brand new-in-box Macbook in less than an hour.

Waiting a few days for it to be serviced seems like it would be a much worse experience...

According to MacRumors there are only apple stores in 24 countries. Working with independent distributors does tend to increase availability of products and services in smaller markets, such as small countries, because the market is "worth it" to resellers located in those countries while largely ignored by the manufacturer.

I can't say as I've never owned an Apple product, but while I generally disagree with the way Apple's repairs work (see Luis Rossman), that was not the point of my comment.

The point was, that Apple didn't care about our country as there are only 2M or so of us and so we couldn't even get any apple products for many years, while every other manufacturer that used the distributor model was already here.

The point about repairs maybe doesn't apply to Apple (I don't know how they do things around here), but my OnePlus phone, for example, which is sold directly by OnePlus would have to get shipped off to by repaired, possibly at my expense, and I'd have to wait weeks to get it back. Same (to some extent) with anything I buy from Amazon - they're not present in the country so they don't have to abide by the warranty and repair laws as strictly.

When GM went bankrupt, why didn't they ditch the entire dealer network, instead of culling hundreds of small dealers?

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