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Comment by paxys | Hacker News Reader

A lot has been said about the dealership model in the last few years, and the almost universal consensus is that it is an unnecessary and predatory industry and all auto makers should just sell cars directly like Tesla does.

That being said, is there any counterpoint to this view? Are there any benefits that dealerships offer today over direct sales? What would we lose if we got rid of every dealership? If there is truly little or no advantage, why has this obvious disruption never come up in the last ~100+ years of car sales in this country and all over the world?

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>That being said, is there any counterpoint to this view? Are there any benefits that dealerships offer today over direct sales?

the only thing I can think to say is that they are still a convenient repair facility, Tesla is fairly notorious for slow turn-around for repair.[0]

I think a nice middle-ground would be the conversion of dealerships into showrooms/receiving-centers/repair facilities -- oust the sales portion and highly regulate the repair pricing. Faster repair times while getting rid of most of the scummy parts of the car dealership experience.

[0]: https://www.teslaownersonline.com/threads/model-3-significan...

Tesla's wait times could be because they are scaling up and part delays.

Well, and becuse they don't have a dealership in every city. You can get a ford serviced anywhere and they have a waiting room for you to wait if needed. Even in rural areas, a very small percentage of the country is not going to be close to a dealer.

if your driving a newer car, theyll handle warrenty work, recalls, service packages that your car came with.

Everyone is having parts Problems, it's the scaling that Tesla still needs to do.

Tesla's wait times are because every part that sits on a shelf for warranty/service/accident repairs is a part that can't go on a vehicle coming off the assembly line, and we all know that Tesla / Elon has a raging hard on for "deliveries, deliveries, deliveries".

"Because they're scaling up". They've been making vehicles for 14 years, how much more time do they get to realize they should have a parts network?

> Tesla's wait times are because every part that sits on a shelf for warranty/service/accident repairs is a part that can't go on a vehicle coming off the assembly line, and we all know that Tesla / Elon has a raging hard on for "deliveries, deliveries, deliveries".

The Soviet Union's automotive industry operated in this exact manner. It's why, when by some miracle you got your hands on a car, sourcing replacement parts was nigh-impossible.

> ... how much more time do they get to realize they should have a parts network?

It took them ~60 years, give or take.

I’ll second this from a privileged position. I own a late model Land Rover, and if I take it down to the dealer to solve something, they treat me very well and put me in a very nice lounge while I wait. It’s a first class experience. I don’t think I’d get as nice attention from a non-luxury dealer though.

Every dealership I’ve ever been to has been like that.

Sometimes they’re even worth using for “normal” repairs because they will sometimes bill by the book even if the actual labor time is higher.

> Sometimes they’re even worth using for “normal” repairs because they will sometimes bill by the book even if the actual labor time is higher.

This is exactly correct. Which is why if you aren’t sure, compare prices with your preferred mechanic first. Where I am, the best independent mechanics and shops charge more than the dealer, for various reasons.

Every shop I’ve seen uses the book times for any standard job.

My experience is that independents are significantly cheaper on a like-for-like basis, are also more willing to do a workable partial or alternate repair, but have worse lounges and often no courtesy car. (So you’re getting something for the extra cost.)

Yeah, it’s worth knowing the details - some shops will charge book time if it’s in their favor but charge clock time if the repair is a pain - and with older cars that have dents and rust and such it can often be a pain.

The closer the person who does the work is to being the person who writes the bill the closer you get to clock time in my experience.

I am lost, what is 'book times'?

The auto manufacturers put out repair guides that list how many hours of a mechanics time a repair should take.

https://www.liveabout.com/the-truth-about-flat-rate-car-repa...

Many mechanics aren’t really directly employees of the shop, and often get paid based on work they get (some even have to “rent” the stall). It can be an interesting industry.

I feel like any repair at the dealership costs at least 50% more than if you go to another establishment. Does that ring true to anyone else?

> I feel like any repair at the dealership costs at least 50% more than if you go to another establishment.

It’s entirely dependent on the market and region. Sometimes it is cheaper to go to the dealer depending on make and model. It also depends on where you live and the availability of mechanics and parts.

There’s also certain things that are cheaper at a dealership. My father is a mechanic and still brings his truck to the dealership for oil changes because they will change the oil for literally less than his shop can buy the oil for.

I would rather they pickup my car fix it and return it. To me that is luxury. Forcing me to go to your location and waiting on you is not convenient.

That is most certainly also an option, but likely a bit wasteful and much more time consuming if it’s a small issue.

I get that option from both my Lincoln dealer and my Audi dealer, even for scheduled services. And they both leave a loaner with me, not some Uber credits.

What about a loaner while your car is being fixed?

Sounds like Stockholm Syndrome - they made an unreliable car that you need to get serviced all the time, but hey - at least there's free soda and popcorn!

Agreed. I have nothing but bad experiences taking cars to the dealership for repair, and normally choose to avoid them for everything except for recalls. However, when buying an EV, I want to know that the manufacturer has repair facilities nearby since third-party EV mechanics are almost non-existent at this point.

If Ford is deliberately bypassing their dealerships for sales, then I would expect the repair service provided by dealerships to be even worse than normal, since they have no motivation to make you a repeat customer. And if not the dealership, where will I have the truck serviced?

I'm under the impression that the service part of the dealership _is_ the profitable part -- the car sales are more-or-less break-even after the monthly sales bonus incentives, which is why the dealer does the two-part "let me check with the guy in the back" and then "now that you've agreed to a price, you can talk to the guy in the back who will play 'good cop', explain things in plain english, and then try to upsell you on auto insurance, prepaid repair plans, and financing" to try to extract a little more profit out of a sale.

> I'm under the impression that the service part of the dealership _is_ the profitable part

If you drive a Ford, sure, it needs a lot of service. Which is why I stopped buying Ford. Toyota and Honda don’t need much service, and I don’t see how they are money makers for the dealer. And when you move to EV, you need even less service than before since the is no ICE to maintain.

> Toyota and Honda don’t need much service, and I don’t see how they are money makers for the dealer

Well first off, people like buy that marketing stuff hook line and sinker, so they make more on the sale. Second, pretty much any vehicle that rolls on earths surface is going to need stuff serviced in proportion to how close it is to the ground. For cars this means the dealer can make plenty of money selling brake pads, wheel bearings, suspension bushings, tie rods, and other wear items like that (and the labor to swap them out).

The thing about Toyota and Honda though is they create loyal customers who keep coming back. My buddy has a Toyota with 250k miles on it. And that’s considered normal wear and tear. Good luck trying to get a Ford past 120k. Ever had to deal with a Ford dealership? It’s like visiting hell for a day.

It's all in the perceptions.

Pretty much everything made in the last 30yr lasts as long as you're willing to keep doing the normal scheduled maintenance and keep feeding it wear parts. The average Toyota buyer is a lot more willing and financially capable of doing that than the kind of person who rolls negative equity on an Altima into a Dodge Journey.

I used to be responsible for a fleet of delivery vans. I would have no qualms about buying Ford.

You’re talking about the difference between commercial and commuter use. We both know that they are not the same at all, and have different manufacturing environments, parts, builds, and specs. Clearly, this discussion is not about commercial vehicles.

Go look at the list of most reliable cars. Toyota and Honda are always listed as number one and two. Ford isn’t ever discussed as "reliable". I think this goes way beyond perception. Yes, commercial vehicles by Ford are probably reliable, but we are talking about regular commuter cars, and when it comes to that class, Toyota and Honda lead.

Wow, I was not expecting Ford transit vans to be above-average reliable, but a bit of searching around shows that indeed they are. Not as reliable as a Mercedes Sprinter, but I wonder if the operating costs are lower over the years (they cost roughly the same, which also surprised me) than the Mercedes.

Mercedes is actually quite price competitive.

And commercial vehicles live in a different world where companies actually track TCO and friends.

I think that's just a reflection of how terrible the Euro-vans are in general. in North America they're not held in high regard by anyone other than the highfalutin taxi/airport shuttle/mobility van fleets that buy new and depreciate over the warranty period.

The Transit and the Sprinter (the latter of which has really gone down the tubes since it's '00s peak) might be "good" but that's like being MVP in a junior varsity game. Anyone operating them outside of warranty generally hates them compared to the Ford and Chevy vans they're replacing.

> I think that's just a reflection of how terrible the Euro-vans are in general. in North America they're not held in high regard by anyone other than the highfalutin taxi/airport shuttle/mobility van fleets that buy new and depreciate over the warranty period.

I’m sorry, but this statement is so utterly and totally opposed to the facts, that I’m beginning to think you’re doing PR for Ford. The demand for Euro-Vans in North America is so high, there’s a 1-2 year waiting list. It’s literally the most wanted vehicle in its class.

Sigh. This is why we can't have good things. Thank you for saving me some research time on the heads up of the overall Mercedes quality.

It gels with my experience with Mercedes sedans. Until I got to the very top of the line S-series like the 5xx/6xx, the owner experience on recent models was still a step down from what it was like leading up to 2000, mostly with fiddly bit details and robustness/conscientiousness overlooked in those details, and this quality corruption seems to have infected the other product offerings from your description. The core vehicle itself was fine, but I'm not paying the Mercedes premium just to overlook those details.

Maybe I'll stick with my original plan of getting a Toyota Hi-Lux and convert + tow what I want instead of lumping it into an all-in-one large commercial/trade van.

Oh FFS. Fine, if the fanboys demand it I'll do a personal use comparison.

What do you do in your Accord? You commute in it, or something along those lines, and that's probably about it. How much back seat wear is it getting? You got kids fighting back there? Do you stick your new dryer on the roof or do you pay the $20 for delivery? Your peers probably answer those questions about the same way. Meanwhile, several tax brackets down things are way different. Some single mom's four kids are doing their best impression of UFC in the back of her '09 CVT Altima, no wonder the seat is ripped, the floor contains a dozen types of dried soft drink syrup and the "window lock" switch is worn out by 100k. The differences only get wider as you start considering vehicles that are sold as having a lot of utility (wagons, SUVs, minivans), at the lower price tiers people size these vehicles to be just barely enough for what they want to do. At the high end people are buy way more vehicle than they need.

Let's even remove brand from the equation. How many grand Marquis do you see on the road these days? Probably 2 for every non-cop and non-ex-cop Crown Vic you see. Do you think that is in any way representative of the sales numbers when those things were rolling off the line back in the day? Of course not. Vics out-sold Grand Marquis and Town Cars by a wide margin. But a greater fraction of 'Vic buyers rode them hard and put them away wet with the intention of getting something else around 100-200k. The older, wealthier Grand Marquis buyers did the maintenance on schedule and kept them in good order so they lasted longer.

A key mechanism of "lasting longer" is price. People have different expectations and give different treatment to a car depending on price. So you trade in your Accord or whatever, it's in great shape. It goes on the used car lot for a lot of $$. So that ensures the the statistical next buyer is more well off, expecting it to last longer and therefore more willing to care for it. Meanwhile the guy that buys the Altima from the above example pays pennies for it and is expecting it to go maybe 50k before needing something big at which point he intends to dump it. So he's not gonna fix that window lock switch. He's gonna have no qualms about letting his dog f-up the already torn back seat. He's also gonna skip the transmission fluid changes and air filter and generally neglect the car because there's no reason not to if you intend on dumping it in short order.

You can run the same comparison on '00s Impalas and the Buick equivalent (both generally regarded as supremely reliable cars). The Impalas got beat and thrown away. The Buicks are still around (proportionally).

You don't think Ford, or GM, or whoever, makes reliable models for the same reason you'd never consider buying a house anywhere other than a good school district. It's a self-reinforcing expectation foisted upon you by the kind of people you surround yourself with.

You just did it again, for a second time. All the benefits you describe in the specific models come from Canadian manufacturing, which gives it a higher reliability rating than its US produced counterparts.

> You don't think Ford, or GM, or whoever, makes reliable models for the same reason you'd never consider buying a house anywhere other than a good school district. It's a self-reinforcing expectation foisted upon you by the kind of people you surround yourself with.

Completely wrong and incorrect. I’ve owned and driven Ford. They were not reliable and one model I had was officially recalled 17 times, but had numerous outstanding issues that were never recalled for those problems. Toyota and Honda owners don’t have these kind of concerns.

I will freely admit that Canada makes more reliable Fords (and GM) than the US, and the reliability indices reflect that fact. Back in the day, I knew many people who would only buy Fords and GMs made in Canada for this reason.

Well, my 2000 Expedition went 390k miles.

Service was:

Two alternators, installed by me.

The usual brakes and tires, half installed by me.

Couple of gas caps. (Wtf?)

Two sets of the bes plugs money can buy because that engine was the one with crazy thin threaded areas where the plugs go. Had the dealer techs do those. And I went to a rural dealer, had a great experience.

Water pump, installed by local shop.

I would still be driving that rig, but it had an internal engine component failure that costs more than the thing was worth, so I sold it to a family here for a couple hundred bucks. Husband does his own work, has small shop, can profit on the vehicle.

Was a great vehicle. I got it from a shady dealer who I out dealt for a purchase 3 percent over invoice, and zero back end contract adders. (Took 6 hours, but literally saved me just south of 15k)

I agree with you, all that said. The dealers near me are the worst! That is by far the more common experience.

I have family in the rural part of the State and the dealer there is awesome! Would recommend.

My Ford driving experiences do not agree with you. But, that is all our own experiences too.

One of my favorite Fords was an old 1980 Futura. Box car, 4 cylinder, 4 speed manual trans. That thing got crazy good mileage and was fun to drive. Wonderfully old school black with plaid interior, that old AM radio with center dash speaker, lol. I went 100k in that car. Got it for a song too. Ugly.

Consumer Reports testing consistently rate Asian car brands above American brands in terms of reliability.

https://www.consumerreports.org/car-reliability-owner-satisf...

This is an irrelevant comment. The topic of the conversation taking place is the revenue distribution of dealerships, not the relative reliability of different car manufacturers.

Regardless of manufacturer among well-known cars in the U.S., the economics of a car dealership do not change from one to the next.

They have a long history of this, even when the "American" car is the same as the Asian car except for the name plate. The big brands often fill gaps in their lineup with a car from a smaller Asian company. Other than the name it is the same car built on the same assembly line. There cannot be a difference, yet Consumer reports will rate the American car lower.

It’s possible. This reminds me of the partnership between GM and Suzuki.

And what will you do when Toyota/Honda do the same thing as Ford/Tesla? Looking at things now, it looks like it's how things are going

I have a 19 year old Ford Focus that has been great. It's not much on creature comforts but it starts and runs like new. I've had two Hondas of the same vintage with dead transmissions.

It’s a shame those early 2000s automatic transmissions were junk. I’ve owned a few of them myself and it’s part of the territory. They got a lot better around 2012 but the damage was done.

All manufacturers can suffer from poor repair times, not only Tesla. Especially these days.

I waited six months for a brake booster replacement in my Audi SQ5 as it sat in the service center. They did give me a loaner the whole time though...

RS 5 owner (and a few As). Any time my Audi has been in the shop for more than 2 hours I'm offered or given a loaner. Or they pick up my car, at home, drop off a loaner, and then return mine.

Try that with Tesla. Hey, we can give you Uber credits. Hope they're usable in your area, and you didn't have too much to do.

Tesla had very poor repair times even before the supply chain issues, much worse than other makes.

I don't disbelieve you but would still really like details (how much worse than others?)/a citation here.

https://old.reddit.com/r/teslamotors/comments/5qeca7/6_month...

Um. Dude. That's a non-randomly sampled anecdote that says nothing about average repair times. It is quite literally worse than useless.

Fair point, but if you check the subreddit there are lots of similar anecdotes and the general sentiment of the commenters is that it is a common issue. I understand it isn't empirical data, but I don't know that that data exists outside of Tesla and I wouldn't really trust any data coming from them.

There is virtually none. My brother and my best friend sold cars and jumps around. Now they are at a no haggle Toyota dealership that basically sells at MSRP. It is generally much better for everyone involved. Just make it like a Tesla experience, throw you the keys, if you want it here is the prices. Don't have to deal with BS anywhere.

The "dealership" model needs to be killed off. It's probably just a few dozen moguls that make money off of these dealerships and spend most of their money lobbying.

I think that’s far less true then you think it is.

I don’t love the dealer experience, but they distribute the wealth of the auto industry regionally instead of concentrating it in Dearborn or wherever. Local dealers are always sponsoring little league teams and paying property taxes on relatively valuable real estate in a way that Tesla never will.

I dunno, it’s hard to argue this if you take it as gospel that the economy is at its best when it’s finding efficiency at whatever cost. I don’t feel super strongly, but I do think there’s something to this.

That's how Polestar works- online sales with no negotiations, showrooms that are just that- showrooms and service is done at Volvo service places.

I read a story on Reddit of a guy who was banned from CarMax and couldn't figure out why. He was told it was decided by corporate, and that was that.

https://old.reddit.com/r/carmax/comments/cx82v8/carmax_refus...

Kind of reminds me of stories of folks who need support with Google account issues - sometimes things like that just slip through the cracks. Google might have processes for typical cases, but if a weird corner case arises, it can be impossible to get someone to make an exception to help you.

I wonder if things would go the same way with centralized sales and repair processes ... "hey my new car is having this weird issue" ... "sorry the algorithm says everything is within spec, go away", rather than potentially being able to contact multiple independent dealership service departments until someone is able to reproduce/fix your issue.

Local profit? That is, in many towns, my understanding is that the local dealerships are relatively well off. Which implies that a bit more of the money is kept local to where the cars are being sold.

I'm guessing this is less true today than in years past.

In many small to medium size towns if you find the family who owns the local ($BRANDNAME) dealership they are often among the wealthiest people in the entire county.

edit: I can see from the two other comments here alongside mine that this is a common observation.

What does that have to do with anything?

maybe the amount of profit made in being a middle-man between the manufacturer and consumer end-user is unreasonable and unwarranted?

It's only unreasonable if they are not providing value. Lots of us get into business exactly because we can provide value and simultaneously become wealthy. This is no sin.

If they provided value then states wouldn't have needed to enshrine their existence into law. I say let them compete with the manufacturer and see if "go to a showroom for a test drive, then click click click, buy, deliver to your home" wins Vs. "Spend an entire day haggling and avoiding all kinds of poor treatment/predatory practices."

People HATE dealerships. They make a very fun purchase a very unfun purchase.

People hate dealers, love getting a car today. Dealers do what they do because it works, and it is largely what the consumer seems to prefer. You don't think dealers would do online fixed-price sales for pre-orders if it worked? They would! And they will, if the market rewards that.

Very few people actually want to wait weeks or months for the car. HN doesn't believe that, because we're tilted towards Tesla fans who are inclined to be okay with this. Average Joe will put up with a few hours at the dealer to get their new ride today.

"Dealers do what they do because it works, and it is largely what the consumer seems to prefer."

Not likely due to consumer preference, as its a given that dealership and buying experience is often hated by the consumer. look at this thread, talk to friends,and search the internet. Sure its anecdotal but its appears to be pretty consistent across the board despite not being a scientific survey.

Heck even carmax created their business model around how the consumer hates the buying process and even though carmax often charges more in the $2.5K - $4K range than what you can negotiate elsewhere they are still around.

Its more that they (the dealership) has a very strong lobbying influence and have rigged the market in their favor where the consumer has to take it. Like making themselves a forced middleman.

kind of how comcast is often rated among its own customer at the top of the most hated company list year after year ,yet they stay in business.

Something can provide value and still be considered unreasonable profiteering.

Health care in the US comes to mind. Is it beneficial? Yes. Are the prices marked up beyond insanity through bad incentives and rent-seeking? Also, yes.

It's not an either or.

Maybe instead of auto manufacturers getting all the profit it’s nice that a local middleman gets rich too?

But it sounds like the local middleman is getting rich at the expense of fellow-locals

There is little reason to think moving to direct sales will help anyone local, is there?

I'm now convinced it is a bad idea. But I don't see it being good for local at all.

The manufacturer can set the invoice price at whatever they want already. Dealerships are only negotiating their piece of the pie, they aren't actually able to alter the core price of the vehicle. The market/competition determines what a manufacturer charges, the dealerships just obfuscate the exact figure.

So I agree with the other commentor, they exist to extract local money, to make a few locals rich, the manufacturer's piece of the pie is whatever they think they can charge either way. If you cut out dealerships you make prices less obscure and force manufacturers to compete more closely with one another, and also save the middleman rent-seeking.

Sorta. Most of the big names already make more with financing than they do from the car.

Cars are odd. Shipping is not cheap on them. And will never be cheap. If there is not some contractual obligation to ship inventory closer to consumers, I see little reason to think prices won't go up in a market that is dominated by direct sales.

Sales margins are low. Service is the big money maker, and if you buy a new car you don’t want to void the warranty.

Making money on the back through financing or upsells is normal.

Well, we've recently seen dealers marking up cars insane prices, so maybe direct sales at MSRP do help keep money local.

I'm glad if I'm going to pay someone for not doing anything it's a local person so I can see how much my money is helping them at the country club I can't get into.

Perhaps you can gaze wistfully at their yacht you can't hope to afford in the local marina you can't afford moorage at too!

Fun times for all.

I mean, I'm not really trying to defend them. Just saying that having the wealth local gives a better chance of taxing it locally.

I'm game for how this week help local folks, though. My gut is it will just be fewer rich people at the very top of these companies.

The world needs fewer middlemen

Not necessarily true at all.

It's a sign of successful rent-seeking.

Owning a car sales franchise is one of the best forms of rent-seeking, thanks to state and federal laws protecting car dealers.

https://en.wikipedia.org/wiki/Rent-seeking

And even more interesting is that family usually owns multiple brand dealerships sometimes to the point of almost a monopoly in the local market.

Cars are likely a family’s largest purchase behind real estate. If you are going to sell anything, then sell the most expensive item that EVERYONE buys.

They also tend to be very involved in local politics. Seems to me they fit the definition of "oligarchs": https://en.wikipedia.org/wiki/Business_oligarch

Okay, I'll bite. How do I open a dealership?

First step, have several million dollars available to you. Usually in the region of $10M (which was the estimate for the NBA player Damian Lillard's Toyota dealership, by the time you find a property, build it out, initial inventory stock, etc., etc.)

Dunno, but I can tell you how my family started as I think it's really interesting.

Yugoslavia was just falling apart - the entire country went from planned limited production to open market. My family was importing cars from other countries as this started. The demand was so great, that when the truck with cars stopped on a parking lot at his home, people would come running putting their "reserved" stickers on cars. Everyday he did a trip out of the country and back. "Sold" all cars before he had a chance to step outside a truck.

This lasted for sometime, giving him enough bankroll to open car dealership. Not sure how exactly it happened, but few years later it became Ford dealership and still is.

The owners of those local dealerships also tend to have a big hand in driving town politics as they’re often the richest people around.

The other side of that is the dealership owner is often the richest person in a small town and has extremely outsized impact on local politics.

I think that is precisely why the laws have largely not allowed direct sales. :)

Cutting out a markup is also a good way to keep money local.

Why is "local profit" is assumed to be a positive thing? It seems to me that if we were to prove keeping money in certain places to be a benefit to society as a whole there would be much more effective and direct ways of making it happen

Because it's evenly distributed throughout the country.

Local profit implies locally taxed income.

I think your mistake here is to look at dealers simply as sales outlets. Dealers would deny that. You sell a car once, but you work on it multiple times throughout its life. IMO the problem with comparing to other retail channels is that most things we buy aren't expensive enough to warrant the same level of upkeep as a $30,000 car.

Tesla has made fixed-price online sales work so far, but notice that they're scrambling to build the support network. They're re-creating most of the dealership model but bringing the ownership in-house. That's only good if their customer service is good, because now you don't really have any good alternatives.

> why has this obvious disruption never come up in the last ~100+ years of car sales in this country and all over the world?

This is important. We can try to point to laws, but the more likely answer is that the current model is the best we've invented yet. There have been attempts to change, and more often than not it's the consumers that reject it, not lawmakers.

Before recent markups because of parts shortages, dealers mostly made almost nothing on new cars. Even now I'd assume most of their money comes from service and used car sales.

Mostly true in terms of margins, at least if you consider finance and insurance separately from vehicle sales (as all dealerships do).

Nevertheless, new vehicle sales including F&I is a non-negligible factor in most dealerships' bottom line, and new vehicle sales can also be a significant driver of service volume (both organically and as a result of loyalty incentives).

You're also correct in assuming COVID has been good for new vehicle sales profitability.

Here are the per-segment breakdowns reported by the three largest dealership groups in the US, before and after COVID:

1. AutoNation (AN)

2019 Rv: 52.3% New, 25.6% Used, 16.7% S&P, 4.8% F&I, 0.6% Other

2019 GP: 14.3% New, 10.4% Used, 46.1% S&P, 29.0% F&I

2021 Rv: 46.7% New, 33.4% Used, 14.3% S&P, 5.4% F&I, 0.2% Other

2021 GP: 24.3% New, 13.9% Used, 33.8% S&P, 28.0% F&I

2. Penske Automotive (PAG) (excluding non-retail auto dealership businesses)

2019 Rv: 45% New, 35% Used, 6% Fleet, 11% S&P, 3% F&I

2019 GP: 23% New, 12% Used, 1% Fleet, 43% S&P, 21% F&I

2021 Rv: 44% New, 38% Used, 5% Fleet, 10% S&P, 3% F&I

2021 GP: 27% New, 17% Used, 2% Fleet, 34% S&P, 20% F&I

3. Sonic Automotive (SAH)

2019 Rv: 47.0% New, 35.0% Used, 13.0% S&P, 5.0% F&I and Other

2019 GP: 15.0% New, 10.0% Used, 44.0% S&P, 31.0% F&I and Other

2021 Rv: 41.3% New, 39.3% Used, 11.3% S&P, 8.1% F&I and Other

2021 GP: 24.1% New, 6.9% Used, 35.2% S&P, 33.8% F&I and Other

(Rv = revenue as percentage of total, GP = gross profit as percentage of total, New, Used, Fleet = vehicle sales, S&P = Service and Parts, F&I = Finance and Insurance)

(source: SEC filings)

N.B.: Gross profit may be a misleading figure in this comparison, as it excludes major expenses (notably, salaries and commissions for non-administrative staff) directly attributable to particular business segments. Alas, I'm lazy, and these are the only per-segment percentages immediately available in all dealership 10-Ks.

With all that said, I imagine many, possibly most, dealerships would remain comfortably profitable even if net (non-F&I!) profit on new vehicle sales were zero.

Finally, note that fixed vehicle pricing is not exactly a new idea: GM famously introduced the Saturn marque with a similar tactic. And as with this older example, I assume Ford isn't planning to mandate fixed pricing on financing, insurance, trade-in allowances, third-party extended warranties, dealership-installed options, or anything else beyond the selling price of the vehicle itself and possibly certain minor fees related to the sale.

Many states have laws that explicitly prohibit direct sales. https://en.wikipedia.org/wiki/Car_dealerships_in_the_United_...

That's just a racket for the dealerships though.

Right, this is just an answer for "why has this obvious disruption never come up in the last ~100+ years"

And thoroughly defended for a measly $10MM per year. https://www.opensecrets.org/industries/summary.php?cycle=202...

The only argument for it I've read is that it indirectly forces auto manufacturers to have local service centers to handle repairs, warranty work, etc.

This. And localities outlawing direct sales due to eons of local lobbying.

> That being said, is there any counterpoint to this view?

1. A national dealership network is at minimum, a soft-guarantee that your car can be maintained/recalled/fixed without you jumping through hoops.

Unfortunately, that soft-guarantee is saddled with all the other baggage of car dealerships. Pushy sales-people, extended warranties, predatory loans, etc.

2. It forces you to buy local, so not all the money flows out of your community, and into Detroit - some of it stays to circulate in your town.

3. People want to sell/trade their cars in, and Craigslist can be a pain in the ass.

4. People like to test-drive cars. People really like to test-drive used cars. See point #3. By the time Tesla starts holding used car inventories[1], and lets local buyers test-drive them[2], their 'showroom' starts looking less like an innovation, and more like a non-franchised dealership, where instead of the franchise owner skimming profit off the top, it just goes up the food chain, directly to corporate.

[1] Which they are.

[2] Which they do.

Looking at Detroit.. I don’t think a lot of money is flowing there.

I live in Detroit. We have tech positions and several employers that are doing fine. If you haven’t checked out the city in a while, I’d encourage you to. It’s really starting to rebound.

Detroit the metropolitan area is doing pretty well. The executives live in the suburbs.

That’s a consequence of suburbanization and divestiture from the major auto cities (Detroit, Pontiac, etc) in Michigan.

In recent years there has been meaningful investment and growth in Detroit [0], but a lot of auto money is in surrounding areas like Grosse Pointe [2] and Oakland county [1].

[0]: https://fred.stlouisfed.org/series/DETR826PCPI

[1]: https://en.m.wikipedia.org/wiki/List_of_Michigan_locations_b...

[2]: https://en.m.wikipedia.org/wiki/Grosse_Pointe,_Michigan

Edit: mentioned Grosse Pointe

> 2. It forces you to buy local, so not all the money flows out of your community, and into Detroit - some of it stays to circulate in your town.

I think this is a kind of ‘broken window’ fallacy - ie unless there is a genuine service being offered then it’s kind of like requiring gardeners to use toe-clippers (ie the local economy are paying extra to hire people to do basically nothing).

> 3. People want to sell/trade their cars in, and Craigslist can be a pain in the ass.

Tesla offers a trade-in program so that appears to be similar in some respects?

> I think this is a kind of ‘broken window’ fallacy - ie unless there is a genuine service being offered then it’s kind of like requiring gardeners to use toe-clippers (ie the local economy are paying extra to hire people to do basically nothing).

I'm not going to argue with you as to whether or not the theory behind it is correct (my feelings on the subject are complicated), but I will point out that there's a major political movement in this country to 'keep it local', that has varying degrees of support in varying levels of government. Regardless of whether or not this desire is correct, whether its organic, or whether its simply manufactured through propaganda - it's present, and it gets acted upon.

> Tesla offers a trade-in program so that appears to be similar in some respects?

Which I address in point #4 - at the point where they start doing a major amount of business in trade-ins, they start looking like... A corporate-owned dealership, as opposed to a franchised one. A lot of the cost savings of 'show room-only' stores go away when you start having to deal with used inventory, scheduling test-drives, fixing cars in your dealership garage, etc.

Obviously, when they were first getting started, their used market was tiny, and none of those business needs/costs were present. But as their cars age/if they ever manage to successfully sell more models/if they somehow manage to capture a major chunk of the overall auto market, their 'stores' will have to offer pretty much every service that a traditional dealership does.

When I see "No Haggle, Fixed-Price, Online Only", I think "Rip Off", and I can't be the only one.

It's not that I enjoy haggling with car salesmen, walking out the door and getting hunted down in the parking lot like an animal... I don't... in fact I hate it. But at the end of the day I get a deal I'm satisfied and comfortable with - and it's always below MSRP - far below.

I think what we're seeing here is a combination of the younger generation's fear of conflict (a negotiation is an adversarial conflict), coupled with car manufacturers realizing a lot of people are totally OK paying $10,000+ over MSRP... almost "bidding" for a car.

I fully expect prices to increase, while overhead decreases (no sales staff, no stale inventory, no loss of inventory, rent payments, etc). But the younger generation will feel great because they got to click a button and a grossly overpriced car shows up the next day - just like "Amazon but for Cars!".

I can't see any positive coming out of this. You don't buy anything over a few thousand bucks without negotiating. Even the photo copier at your office was negotiated for days or weeks... how can someone buy a $50,000 vehicle at MSRP/Invoice price and claim they didn't throw away money?

It used to be only suckers walked into a dealership and paid sticker price... bigger suckers payed more than sticker price (gotta have that undercarriage coating), and everyone else paid closer to the true price having researched what similar vehicles sold for etc.

Why would a fixed, online price end up being higher on average than what someone paid after haggling at a dealership. If anything, it should be lower because of (1) Reduced overhead, and (2) It is more closer to a free-market due to more transparency.

Yes, there might be outliers where an extremely good haggler paid less, but that would be outweighed by a novice who paid way more, and the average has to be higher because of the higher overhead.

Why would Ford (or any manufacturer) offer cars on their website for cheaper than MSRP? What is their incentive?

MSRP is a suggested retail price, which is based off the manufacturer's costs + what they believe is a reasonable margin for their vendor (dealership in this case).

Ford cutting out the middle man means they can offer cars at the same exact price (MSRP in this case), but not have all the expenses dealerships have... meaning massive profit for them.

There is literally no incentive for Ford to offer the cars for less money. Plenty of people have eagerly paid $10,000+ over MSRP already - indicating they could even raise prices if they desired.

Look at Carmax as an example. Their entire business is built around the "no haggle" model - and if you know anything about the cars you are looking at, you will not find any good deals there. Everything is overpriced - but they will tell you it's their "rock bottom price" and any defects or problems have already been factored in.

It's just a sales tactic. Plenty of folks walk into a Carmax believing they're getting the best possible price without any of the hassle... just like their commercials tell you.

What you are saying doesn't make sense UNLESS there is a monopoly. Let's say it costs Ford $10k to manufacture the car. Let's say their average profit per car is $2k, and the dealership gets $1k on average - which means that ON AVERAGE, the dealer sells each car for $13k. Some people might get a good deal for $10k, and some pay $16k. MSRP is likely set to $16k.

You are saying that in the fully online world, Ford would get away with the same MSRP of $16k. This is not possible as long as another competitor can produce the same car for $10k or less and charge say $12k for it. Why would any consumer go for Ford in this case?

I haven't used Carmax but that's different - their whole business is in flipping cars and they have to make enough profit to run their website on top of it. So I would assume it is always going ot be higher price than what you'd get from elsewhere.

Dude just wants to think that his haggling is putting them on top of all of us. When the CEO of Ford says he's spending 2k more than Tesla for delivery. We all lose, them included, but haggling makes them believe they're coming ahead.

They don’t realize the whole dealership setup is designed to make the haggler think he got a good deal. The industry is built around capturing people who think they’re pulling a fast one on the dealer.

Very true, but in recent times it has been much easier to try to pay a fair price. That is until covid hit where it became a sellers market. However it looks like we might have another 6more months before it switches back to a buyers market the way things are going.

For example when I want to buy a car: I start at Carmax which I know its the highest price i can pay for the car. In history I have always been able to get a used car for 2.5K -4K cheaper elsewhere .

This is typically how it goes.

1. I determine which make,model, year car I want.

2. Determine what carmax has it listed for and make that the highest overpriced value for the car.

3. I send out emails and call dealers for similar cars ( millage,model,wear , etc) give them my price that is under 2.5K - 4K less than carmax.

4. they say sure come on in.

5. The games begin and the bs runs from the salesman script that tries to convince me that a manufactured car in the 100Ks is a custom one of a kind vehicle that I will never be able to buy again.

6. i Say here is my price and the good cop salesman than sends me to the back to the sales manager who says I will put him out of business if he sells me that vehicle for that price.

7. I say I understand then I walk out and he lets me walk out.

8. A few days or even a month later he calls me back says he can do the deal then send me back to the sales manager again.

9. the Sales manager than says oh sorry we cant do that price because its a cash offer or that I have to use his preferred loan provider. Or tries to convince me to take his loan provider anyways and then cancel it by paying cash or refinance it a week later.

10. I walk out again or I get the car. One case I had to walk out again until I got another call to come back. In most cases I only waste about an hour in the dealership all together talking to the salesguy and manager, since when the send me to the back to the sales manager I typically tell them I have 15 minutes to make it happen or you can call me back when you have all the information you need to make the decision.

So atleast today we have the no haggle places now to tell us what is the ripoff price for the car and not the dealership sponsored bs MSRP or the kelly blue book crap.

The crazy thing is that I actually want to buy the car from carmax because I do like the experience better, but its not worth paying 2.5K to 4K more for an equivalent car.

I sincerely hope you're not trying to convince us that what you're descibing is a reasonable experience. Every word you wrote describes true horror!

It certainly is true horror experience and why everyone hates the dealer BS experience. However it was even more painful prior to the carmax of the worlds, where the consumer was in the complete dark about prices all together.

Atleast with the carmax and other fixed price dealers , you know what the worst possible deal is and can typically save 2.5K to 4K by going to a normal dealer. You just have to be willing to play the stupid games with them.

The incentive should be competition with other manufacturers who are also offering fixed pricing. More transparency will benefit consumers.

Haggling over prices does not benefit consumers, just like haggling over wages doesn’t benefit employees.

The Carmax approach is great; clearly people are willing to pay to avoid all the normal hassle. Maybe their prices aren’t the best “if you know anything about the cars” -- where does that secret knowledge come from? Wouldn’t it be good if there were multiple Carmaxes and they had to compete on price and service? As long as the real prices were listed on the web and were always the same for everyone.

Car manufacturers have a history of being pissed off at dealers for their markups and giving priority to dealers who sell under MSRP https://www.cnet.com/roadshow/news/heres-how-dodge-plans-to-...

I've bought 4 cars from Carmax. (I have 3 kids.) I know I'm not getting the "best possible price." I don't care. I've bought cars from the standard dealership model, and I hate it so much, I'm willing to pay a non-negotiated, FAIR market value for a used car in order to avoid the sales-tactic bullshit and playing the haggling mini-game. I don't intend on ever buying a car from a NON-non-negotiable place again. The dealership model can die in a fire, thank you very much.

Any intermediary is only going to add more to the price, not less. If an intermediary made prices cheaper for their customers than upstream, then they wouldn't be in business.

The incentive is clearly competition from other manufacturers. In a world of dealerships, competition is murky because you can't really know the final price of a car unless you play the haggle game with every dealership. But if every manufacturer had all the final prices online, you can easily evaluate what is the better deal.

If you believe in competition then the logical consequence will be that the no haggle MSRP will be much more competitive than the current (well pre-COVID supply chain horror) MSRP with 5% padding built in because everyone likes to haggle and think that they are getting a good deal.

I don't follow this logic. The article says Ford is going 100% online for these cars, meaning there will be no other reference price available. Ford can charge whatever they want, so long as some people are willing to pay it - and during COVID we've seen people more than willing to way overpay on cars.

There is no competition with Ford's direct sales website. None.

At least dealerships attempt to compete on price.

There is competition between car companies.

Also competition with keeping your existing car. People won't pay just anything.

> There is no competition with Ford's direct sales website. None.

Do I have to buy an F150 Lightning? I do not.

That’s the missing link. They’re assuming that the person has to get the F150 - but they could buy something else, but nothing, wait for a cyber truck - many other options.

> When I see "No Haggle, Fixed-Price, Online Only", I think "Rip Off", and I can't be the only one.

Since I'll know a fair price of the vehicle before I run across that, I can determine if it is a "ripe off" or a fair market price, with far less hassle/wasted time. I'd always buy from a no haggle dealership if the price was competitive (and my last vehicle purchase was exactly that, it was +-$1K from normal price based on vehicle loan records).

The problem arises when there is no other reference price to compare to. By only offering 1st party sales, and only on their website - Ford sets the reference price. So there will be no comparisons available... and gradually cars will get more expensive because they can and people will pay it.

The other reference prices are the list prices of competing vehicles.

You also have it backwards. The current system of "MSRP as guideline" and you have to negotiate to find the real price makes it more difficult to compare prices between cars and automakers (unless you relish negotiating the prices of 4 competing cars simultaneously at 4 different dealers). The current system is set up precisely to not be price transparent.

The reference price is then their competition, and since prices are not obfuscated you can compare 1:1.

Just like now, but dealerships add a whole layer you have to figure out by determining likely "discounts" between different brand's dealerships.

If the manufacturer could charge more they'd already be doing so, the dealership doesn't actually dictate the prices, they get told the price and are expected to negotiate up then keep the difference.

You keep making the same comment where you pretend you don't know that Ford isn't the only car manufacturer so you can justify the existence of dealerships.

This doesn't make any sense.

You would only feel ripped off because some dealerships say "No Haggle" and some do haggle. If every dealership has the same price for a specific car then literally by definition you cannot get ripped off.

You're also fixating too much on the meaning of MSRP. Before the car shortage MSRP was basically just a marketing number to anchor negotiations at a high number (except for cars in super high demand). Some automakers were notorious for deeply discounting below MSRP and some didn't discount much.

To make it as clear as possible -

Dealerships compete to win your business. They compete in varying ways, which include price and service.

Who does Ford compete with if they set all of the prices and offer direct sales for an entire product line (EV's in this case)?

The answer is "nobody". And we all know competition is what benefits the consumer... this is a regression, not an advancement.

The dealership model can use a shake-up - nobody will argue otherwise. But the answer isn't to destroy competition and allow manufactures to set whatever price they want. That benefits literally nobody except Ford.

They compete with other automakers.

By your logic Ford can just jack up the price they charge to dealers and the dealers would have no choice but to accept it. But that's not true because Ford has to compete with other automakers.

Very few automakers make competing vehicles.

There's a reason Tesla/Rivian can charge so much, and it's not because they're so much better built or way more luxurious than others.

You're basically arguing that Ford has a semi-monopoly over the car categories they compete in. Which is pretty laughable.

Again, by your logic Ford can just jack up the price they charge to dealers and the dealers would have no choice but to accept it. But that's not true because Ford has to compete with other automakers.

>Who does Ford compete with if they set all of the prices and offer direct sales for an entire product line (EV's in this case)?

>The answer is "nobody".

It would seem to me that the answer would be "every other EV manufacturer"?

Doesn’t Ford compete with . . . All the other car companies? Tesla, VW, GM, Kia, Honda, Toyota?

> Who does Ford compete with if they set all of the prices and offer direct sales for an entire product line (EV's in this case)?

Literally every other car manufacturer. Wtf…?

If Ford sells a car at $20000 to a dealership, no way they sell it to you below $20000 given they even have additional costs due to the inefficiencies of being a middleman, rent, transportation, manual staff, insurance, etc

Just like Ford can give the purchaser rebates, they can give the dealer rebates or holdbacks or various other payments when the car is sold (or if enough of certain types of cars are sold) or payments while the car is unsold; just because Ford sold the car for $20,000 doesn't mean the dealer gave them net $20,000 for it.

The only time you can get a "good deal" on a car, is for a car no one wants anyways. Go ahead try it with a decent car.

Not just cars no one wants.

Last car I bought, a Subaru Forrester, which is like 25% of cars in Seattle, I knocked $4000, off of msrp by haggling from 28k to 24k, cross shopping across dealers and walking in with a set price I was willing to pay after finding the lowest dealer. Also going in during 2 manufacturer rebates (one cash, one charity match), and at the end of the quarter. 2018s were starting to show up, bought the 2017.

They got real triggered when I said "all you gotta do to put another name up on that trophy board is come down $500 more" (they were writing all of the sales on the window as they happened).

Brought a book to read while they went in to "talk to the manager".

While there is the option to compared to 'no haggle', I can sit there and waste an hour on their BS for $4k. I find it fun and interesting, and I don't buy cars when I have to only when I want to. Helps to have multiple backup transportation methods.

If I had bought a Prius Prime a few months back I could have gotten $1000 cash back from Toyota, plus a $4500 federal tax credit. Right off the bat I would have beat your haggle by $1500. What a haggler I would have been!

But seriously-- if we're comparing "no haggle" to "haggle" then it doesn't really make sense to include the manufacturer rebates in your total. You'd presumably get those even if dealerships didn't exist.

Of course in this market if you had bought one you could have immediately drove it back onto the lot and sold it back for more than you paid …

Yes. But that's like the Mitch Hedberg joke where he sees stacks of Sam's Cola at Sam's Club for 25 cents and suddenly in his mind he's become a soda salesman.

"Hi, would you like to buy a can of soda for 50 cents? It's warm, because this is a half-ass deal..."

Heh I was referring to the fact that used 2019 models with 40k miles on them currently will sell for MORE than MSRP for a brand new car, because the used one is on the lot and available, the new ones are 6 months out.

Fair... It was $800 cash back from subaru and a $200 charity match. however the dealer just tossed in the $200 for the match so they could make the sale and pump up their charity numbers. So $800 of that $4k was a thing you would have gotten anyway. So I only dropped the price $3200. Still a good hourly rate.

I would rather sit through a timeshare pitch. What a waste of time for all involved

Except they inflated the MSRP by $4k beforehand in order to give you the impression that you got a discount.

I can see the MSRP online and at the no-haggle dealer and on the website for the manuf, MSRP is the one number they do publish.

I really don't understand the rip off feeling if the price is the price.

If I see a widget and the widget meets my needs and the widget fits my budget and I buy it, I don't care how much profit they're making. Why does it matter?

I think the act of feeling ripped off or having to make sure someone only makes a certain amount of profit is a path that leads to anxiety.

You're negotiating by going to the other car makers website. It's actually much easier to find a good deal since it's much easier to discover prices compared to dealers.

> younger generation's fear of conflict

this seems unfounded, with no way to ascertain it. and likely driven by some unconscious biases

> the younger generation's fear of conflict (a negotiation is an adversarial conflict)

The younger generation doesn't necessarily fear conflict. Just look at how it's winning the conflict about conflict against the older generation.

They (we) want to reduce these kinds of negotiation because they give an economic advantage for entirely arbitrary reasons: someone getting a car cheaper because they negotiated harder or getting a better job offer because their trust fund allows them to walk away with ease does in no way benefit society. Whatever they save, someone else has to pay extra to make the system work for the dealerships.

Worse, the ability to negotiate is not some random variable. It's tied to aggressiveness and a sense of entitlement. It's a lifelong rebate for bullies that practiced that sort of thing by stealing younger kids' lunch money. And the only reason it has survived as long as it has is because that happens to be the demographic car salesmen also hail from.

Worst, it isn't even just about someone's ability to assert themselves: a salesman may well react entirely different to the same exact words and behavior based on criteria that would invoke laws against discrimination in other cases. I remember a number of stories of black homeowners being quoted 30 % when having their homes' resale value assessed. Don't remember seeing any tests for car sales, but I'd be surprised if it didn't replicate there: be a white broad-shouldered tall good-looking man and your lowballing makes you a strong opponent. Lack any of those criteria and it's considered an insult to the profession and you get the cold shoulder.

This.

I don't feel like being subjected to hours of manipulation and predatory behavior. I surely know how to push back and deal with it, but it doesn't mean I want to.

Local taxis are often cheaper than Uber/Lyft now since they don't have surge pricing. But the downsides are much worse that people will still pay a premium to not deal with it.

In reality, just like you no longer get a discount for buying online (remember "it's cheaper since the company doesn't have to pay for a brick & mortar store!"?) I wouldn't expect Ford & others to pass the savings along for long. But I'm okay with that given the upsides of saving me time and some mental abuse.

In theory, if manufacturers charge an inflated MSRP, a competitor who doesn't will get the sale instead.

In practice ... well, maybe everyone makes more money if no-one undercuts each other too much. Is it collusion/price-fixing/anti-competitive? Or is it just good business?

> When I see "No Haggle, Fixed-Price, Online Only", I think "Rip Off", and I can't be the only one.

One thing is certain - the more middle men you have, the more expensive it will be.

I enjoy a car haggle every now and then, but what makes it so fun is that its one of the few places you can haggle.

Try to haggle down the price of a bean burrito at taco bell and see how much fun that is. There are all kinds of bean burritos to choose from in mi barrio, but they aren't budging to make a deal.

The same people haggling for cars are paying over asking on house bids.

I've haggled at a guitar center, but then I can't do the same thing at a hot topic when I pick up my chain jeans.

It's a weird game, but more bragging than haggling. The sense of satisfaction at having bargained it down is a pretty good rationalization after you've purchased.

The real value of haggling is realizing some externality that you can take advantage of - a hail damaged car, a untuned guitar, something that would cost them to deal with and you can take off their hands.

You haggle over most things that cost more than $50,000 because those things are unique and their value is subjective.

I don't haggle over the price of gasoline or milk. It's not because the price is low. It's because the identical product is available from a dozen local merchants and I know which is cheapest or which has the best lit parking lot or which has self-checkout. Price becomes so standard that merchants try to compete in other ways. And for those that do choose to compete on price, $0.05 difference on a $5 item is a big gap.

> is there any counterpoint to this view?

I don't think the counterpoint has changed since it was codified in the laws of US states: limit the power of large corporations and their influence over sovereign states. Our ancestors were rather circumspect about corporate power within the US and created mechanisms to insulate themselves from that power.

The emergence of multinational corporations has naturally produced a similar model at the nation-state level: the ability of a global private enterprise to operate in some nation frequently depends on the existence of a domestic component, often in the form of a subsidiary with an obligation to retain executive staff that are citizens subject to the laws of the host nation.

My experience with dealers has been good. They've arranged financing competently, dealt with recall work, honored warranties and supplied OEM quality parts when needed. Nothing as complex as a passenger vehicle and all that goes into realizing one is ever perfect, but the dealers I've dealt with have met all of the expectations I've had of them. I suspect that much of the enmity towards dealers arises from unreasonable expectations. That's a suspicion. This isn't: the same people bitching about dealers today will be bitching at least as much about manufacturers when the dealers are gone.

At some point in this discussion someone speculated that the delegation of EV service to dealers is not viable due to the nature of EVs; the manufacturer must be directly involved or Bad Things will happen. That may be true. I don't know. I do know that, short of some form of mortal danger, I can't imagine a better argument to avoid EVs than that; I will never, ever own a vehicle that can't be properly serviced without the manufacturer's direct involvement. That would be deeply stupid.

A huge percentage of people who bitch about dealers have never bought a new car from one - and the majority of those who do, continue to go to the same dealer thereafter.

The dealership model has never benefited the consumer financially. The majority of dealers view auto sales as one time transactions where their goal is squeeze money from the customer using morally dubious tactics if not outright lies. You have to place the dealership model in historical context. They were created in an era where the Detroit automakers monopolized the industry. And they created mostly shoddy cars. They created “choice” by rebadging one car and passing it off as another. There are good dealerships who want a relationship with the customer. But in my experience they usually end up selling to a larger dealership who only care about gouging the customer.

Plus with cars basically becoming high tech batteries on wheels with dozens of minicomputers. When an EV really breaks down, I doubt your local mechanic can do much about it. At the most, he can swap out one module with another (if he has it). More likely the only thing the dealer can do, is give you a loaner car while the manufacturer ships the modules and components you need. Ford and Tesla are probably better off giving you a loaner car directly and when the parts are available instruct you to go to the nearest repair facility or in the worst case, the technician will come to you.

>Are there any benefits that dealerships offer today over direct sales?

Competition. In a decent sized city you will get multiple dealers for the big names (Toyota, GM, Ford etc) and they will compete against each other. Because of this, you won't pay over MSRP, winter tires at cost, discounted warranties, free oil changes for life and they generally try really hard to keep your business through good customer service.

Wow is that not my experience. Even for cars that I liked, the dealerships never impressed. I always ended up going to other mechanics. I also have discussed the issue with several friends in the past, and heard way more bad experiences than good ones.

Dealerships are major job providers in small towns and provide some of the better jobs. Salespeople, loan officers, etc.

Think replacing local grocery stores with Walmart. Low end jobs stay, high end jobs go away. Further hurts small towns.

My guess is that a good chunk of the efficiencies from this model will go to Ford corporate so it’s a wealth transfer from small towns to big co managers / stockholders.

Semi-counterpoint: Walmart pays hourly workers more than any of the mom-and-pop retail in my hometown.

Try the car. Pay cash. Negotiate. Sell yours. Choose from different brands. Chat with the owner. Get serviced.

People who like negotiations generally think they're good at it.

Guess what? The dealer sells multiple cars per day. You don't know enough to be a good negotiator against them.

Same thing as venture capital vs company founders. Founders found a couple of companies which do a couple of rounds each. VCs make way more investments.

> Guess what? The dealer sells multiple cars per day. You don't know enough to be a good negotiator against them.

Right - so let's get rid of negotiations all together and everyone pays whatever absurd price the sales team at Ford can think of without laughing out loud.

This isn't a box of cookies folks... besides your house, it's likely the most expensive thing you'll ever buy.

There is no "one" price for the asset... unless we remove all the competition that drives down prices (dealerships) and put all the assets into a single basket owned by one of a small handful of manufacturers in the world. What could go wrong?

Wait what?

If there are no negotiations, and Ford's price is too high compared to the market, Ford is going to lose sales. That's micro-economics.

> besides your house, it's likely the most expensive thing you'll ever buy.

This is Hacker News, and I've spent 10s of millions on servers, colo, and cloud.

The problem is Ford will be the market. They are only offering these EV's direct from their website. There will be no dealerships to compete with on price and service.

> This is Hacker News, and I've spent 10s of millions on servers, colo, and cloud.

I'd bet you negotiated those contracts too.

I have no idea what you mean with that Ford comment. My best guess is that you think consumers are too stupid to consider anything but a Ford?

I did negotiate server/colo/cloud prices, but I spent person-months of effort deconstructing what the right price was. I've never done that for a car.

I once interviewed for a CTO job at a major storage vendor, and in the discussion they said that most of their major customers successfully reverse-engineered prices, and that kept their margins down. I've heard that (over beers) from some server resellers, too.

>they said that most of their major customers successfully reverse-engineered prices, and that kept their margins down.

What does this mean? Did they perfect the negotiating process? Did they figure out what your margins are, then demanded that you halve them?

These major storage vendors only make the software; the hardware is commodity.

The customers figured out the prices of the hardware: disks or flash, a way to connect them to a "server", the "server", the network that the "server" offers.

> everyone pays whatever absurd price the sales team

If it's truly absurd then they'll walk away and buy a cheaper car (or a used car) instead.

Ah yes so let's ruin a good thing so the incompetent have a fair chance? Pah.

What is the point of learning and trying to be intelligent if everything around you gets training wheels put on it? Oh wait, it isn't for our benefit.

Yet another case of losing opportunities under the guise of helping stupid people.

Did you leave off the sarcasm marker?

I don't think I'm a good negotiator, I just think I'm better at it than you who is dealing with a "no-haggle" dealer.

You don't have to be faster than the bear, just faster than the slowest person to come out better.

When I buy cars I shop around, there's surprising variance in dealers depending on what's going on with them. If a no haggle place has the best price I'll buy that. I haven't had that ever be the case as they quote MSRP.

I'm glad you think you are so smart.

A decent service and warranty experience is the point a lot of people make, and this has obviously become less important with EVs which require less ongoing maintenance.

Beyond that dealers provide distributed and localized inventory management. Modern car plants basically have to run at full capacity year round, but sales are much more seasonal and unpredictable given effects of gas prices and other economic factors, many of which can be regional. The dealers find underused land all over the country and have huge lots that allow for cars to be delivered on a consistent year round basis which provides efficiencies in the logistics operations since the trucking, shipping, and rail contracts can have permanent workforces and long term predictable contracts. When inventories pile up for specific models the manufacturer can provide incentives and dealers can innovate and adapt to take advantage of these using local knowledge of the conditions in their community in a way that manufacturers would have a harder time doing. Dealers can finance their floorplan using independent and local sources of capital for inventory and buildings which allows the manufacturers to extend operations without taking on additional debt, or putting their own finances at risk.

Some of these factors played more of a role in the past, when new car companies were building out their dealership networks and benefitted more from offloading risks to dealer partners. Tesla was able to innovate with their small showrooms in malls largely because they went for a long time with only a small handful of models, and because the buzz around the brand and vision meant that there has always been a waiting line (still the case), so they’ve never tried to compete for the “car broke down, need something new this week” market, which has had no choice but to head to well-inventoried lot.

Well, for a customer, I think you want the luxury to try before you buy, easy returns, fast delivery, easy upkeep and repair, good warranty and finally you want the lowest prices.

Dealerships are very good for "try before you buy", "easy returns", "fast delivery", and "easy upkeep and repair".

They don't change anything for warranty, and they don't necessarily provide the biggest selection.

So I think best price is the only dimension that dealers could be worse at, but at the same time, you can often negotiate paying below MSRP with a dealer. I guess we're assuming most of the time they take a premium, but it's hard to predict what the prices would be if dealers didn't exist, would they be lower? By how much? Maybe they'd be higher?

The only thing about online orders that is pretty sure is convenience, you can buy a car in your bed and pyjamas, no need to talk to anyone, browse online and purchase, car arrives at your door.

Back in 2001 GM hired my university professor to study what could be done with the dealer network. Even then it was clear dealers were of no use in the long run, but there were no practical ways of getting rid of them.

Forcing dealers to do repairs only effectively meant risking that best dealers would switch to other brands, other dealers would have to charge more for the service and these two factors could potentially kill any brand. No single manufacturer could pull it off, and even if they could find a way to work together to change legislation, it would be way too costly and way too risky.

I am not sure what Tesla does, but I think there's a value in having somebody local which can show me the car, give explanations, provide maintenance services and add-on sales, etc. It doesn't have to be independently owned, in theory, but in practice I think it'd be hard for one company to manage so many local shops at US scale. Some kind of franchise model would work much better. Does it have to be the same as dealership today? Maybe not. But I think there's value in having something like that, even if not exactly what we have now.

The main benefit is it allows some absurd accounting gimmicks that paper pushers have optimized over decades. It’s also a jobs program for all sorts of useless middlemen.

1. Service centers. Others comments have talked about this.

2. Trade-ins. Most new car dealers also sell used cars (in fact many make more profit on used cars than with new cars). Because of this they can usually give you much better trade-in valuations than Tesla, which I believe just sends cars to auction. Obviously you could also just sell to CarMax/Carvana/etc. or sometimes sell a car to a dealership without buying a car. But this is an added bit of hassle.

The worst price you will get for a used car is trading it in. The best thing to do is sell it privately, after researching what it is worth.

They could sell used vehicles, hence provide some value

But, we already have (exclusively) used car dealerships and private car sales.

Once you break it down, dealerships not a combination of businesses that really needs to be together, IMO.

This recent video on motorcycle dealerships argues that dealerships are beneficial for the financial arms of manufacturers and also manage risk due to warranty/recall work and sales flops.

https://youtu.be/meHYBhcpdvQ

There really isn't one. The laws about manufactures not owning dealers are left over from a very different era, and the existing model is a product of pure rent-seeking from the very powerful dealership lobby.

> Are there any benefits that dealerships offer today over direct sales?

Proximity and diversity. How are you going to have direct sales depots in every random town in the world? And which towns get which brands? Makes no sense.

> How are you going to have direct sales depots in every random town in the world?

How about The Internet? Might work…

The Internet is terrible for such things. You want to see it and feel it, test drive it, kick the tires. .

It's a big purchase, so you'd want to at least test it out in person?

No dealerships doesn't mean no test drives. Tesla offers them today.

Yeah but you'd have to set each one up separately, or buy/return in serial order (unless you have a great deal of capital). This vs. walking into some auto mall with like 5 dealers on the same day.

It has meant no test drives in practice. I was shocked when I tried to test drive a Ford Mach-E that no dealership within a 100 mile radius had any inventory on hand -- when I called individual dealerships to ask, they said not only was the entire inventory already promised to individual customers and the only way you could test drive was if someone bailed on their order. I got a few emails that inventory had popped up, by the time I called (even within a few hours!) the vehicle had already sold. I'm genuinely shocked that consumers are buying first production run vehicles entirely online without a test drive.

Even with dealer car sales there's usually a 48 hour or so grace period where if you realize you made a mistake, etc. they'll take it back and annul the sale. I imagine for a purely online sale there'd be a similar agreement and they just pick the car back up.

That’s often a side effect of lemon laws and similar requirements.

Rivian, for example, offers to let you return the vehicle after delivery to your driveway for up to the first of a week or a 1000 miles.

While that is certainly admirable, if you’re choosing between half a dozen options, it would be difficult for most people to buy them all and return the ones they don’t want after testing.

The way I've heard it explained before, feel free to correct me if my facts are wrong: State sales taxes.

The big 3 auto makers are all located in Michigan, USA. If they sold a vehicle direct, the sales tax dollars goes to the State of Michigan. Which means all the other states are missing out on *significant* tax dollars.

To force each state to get tax dollars, local dealerships were established. That way tax dollars go to the state the vehicle is sold in, rather than the state the vehicle manufacturer is located in.

I'm curious if this has changed at all over the last 20 years with the rise of e-commerce. For example, when I order a product on Amazon, do I pay taxes on that product for where I live (where the product is "purchased"?), or where Amazon is headquartered?

It used to be you could avoid taxes for things purchased online even though you had a responsibility to report it yourself.

To answer your question though, you pay tax to the state it is delivered to when ordering from Amazon.

You pay sales taxes in the state you register the car in, period. Doesn't matter where the seller is.

I lived in Virginia, bought a car in Delaware... no sales tax in DE. Wohoo? No, had to pay Virginia sales tax when registering the car.

States already account for this. For example, in Massachusetts, if you purchase a vehicle in a different state, you are subject to a "use-tax" which is equal to the Commonwealth's sales-tax. Otherwise, car dealerships would be non-viable in MA – everyone would take a quick jaunt over to NH to buy their cars.

IME car sales tax are captured by the registering arm (DMV).

You absolutely pay local sales tax on amazon, not Washington salestax. Taxation is about nexus of transaction.

I don’t think so.

I just bought a car from an Oregon dealership, but I live in the state of Washington, and that’s where the vehicle is registered.

Washington got every cent of sales tax from the sale, and Oregon didn’t get anything.

I wonder if it only works because Oregon has no sales tax though.

Yes, as of Jun 2018:

https://en.wikipedia.org/wiki/South_Dakota_v._Wayfair,_Inc.

> The big 3 auto makers are all located in Michigan, USA. If they sold a vehicle direct, the sales tax dollars goes to the State of Michigan. Which means all the other states are missing out on significant tax dollars.

Also, this is not how it ever worked. Sales tax was and is never owed to the state the business is operating from. That is why buying online resulted in being able to evade sales taxes for many years, until the above Supreme Court ruling.

I wrote evade above, because the other states were not technically missing out on tax dollars. All states with sales tax have a “use tax”, which is owed to the state for bringing in merchandise that you have paid less tax on than if you were to have bought it in the state (Florida might be the only state without use tax for online purchases).

However, pursuing people for use tax for small items is a costly endeavor so most people get away with it. But a car is easy, since it has to be registered, the state can easily demand the use tax before making it road legal, and they do (for example when you buy from a no sales tax state and then take your car to be registered in another state).

FortNine made a case for it. They're Canadian, though.

https://www.youtube.com/watch?v=meHYBhcpdvQ

Seems similar to the franchise model. Local people in local markets find the opportunities and take on the risk while the cost of the arrangement is passed on to the consumer.

Easier to see multiple cars from multiple different manufacturers in person in one lot through an informed salesperson. Ford showrooms will not have Toyota cars.

They usually will in the used lot (if any used cars were available anymore).

And many dealer families run multiple brands under one name.

Eg: https://www.walser.com/new-vehicles/minnesota/

One commonly said counterpoint is that having independent dealers means you get better warranty service. Here's how it works.

I had a Subaru, and Subaru had a problem for a decade+ that their head gaskets were tissue paper and frequently failed. So I had one free replacement mid-warranty.

I went in just after the warranty expired for a normal service and lo and behold, the head gasket was bad again. The dealer replaced it for free. What happened? They defrauded Subaru.

So sure, there's an advantage. Not only will a dealer happily be aggressive at any warranty repair, they'll even commit fraud doing it.

Often companies have leeway on warranties - when I did warranty work we had a five year warranty but could give a replacement up to six months “out of warranty” if needed.

Dealers have almost wide latitude about submitting and getting paid for "good will" warranty claims, as long as they don't abuse it.

Sometimes manufactures will direct dealers to fix things that are long out of warranty when weird things happen (like in Seattle when that radio station sent out a bug that bricked the radios over RDS -- the manufacture directed the dealerships via a service memo to replace the radios and bill the manufacture).

Service is a decent part of most dealerships these days, and a good amount of that income is driven from warranty claims.

All car companies have "service memos". It has nothing to do with dealers.

So much hate for car dealership is seems to US specific problem. I don't see so much complains from other country.

for obscene and obscure issues, their overpriced repairs are great. E.g. something weird happened with just your model and you need just that right part/repair but your local repairsperson doesnt have the specialized knowledge

You can test drive multiple vehicles at the same location.

In my opinion, we lose a lot, some things practical and others societal. Practically first, when I’m in the market for a new vehicle, I’m not sure which I honestly want. I like being able to go to a dealership and find something that convinced me otherwise from what I came to originally look at it. In the most recent case, I was really wanting a truck and being able to see them in person, how I fit, etc, was what sold me over one make versus another. Second, how does a future where there’s X car dealerships with different sites that I can’t easily compare across makes sound? Now it’s much harder for the average consumer to find a new vehicle. This will lead to aggregators, which will initially not be allowed up front because the manufacturer wants the full cut, but they’ll eventually concede.

Now societal. Sure, car dealerships may be “predatory” (I argue against that, some may be but most I’ve dealt with are opposite of that because they want your business), but at the end of the day it allows for more people to have jobs and participate in the economy. At some point we, technologists, are going to remove everyone’s job from them and we’ll act surprised societal uprisings happen because there’s no jobs available to the average Joe. Now I’m not arguing against automation, but car dealerships employ millions across the country, I don’t think removing those jobs from our fellow citizens who may or may not be able to do much more than sell cars, to no fault of their own, just to make a few more dollars for the manufacturer at “ease of the consumer”.

Once again these are my opinions, I’d love to hear from people who think this could be a good model for selling vehicles and will take them into full consideration.

Just a note, If you want to go sit in a Tesla or test drive one, you can still do that despite a complete lack of dealerships. In my experience, a Tesla is the only showroom experience where there was 0 pressure, and no-one trying to get my info or photocopy my driver license just to see the inside of a car.

A lack of dealerships does not mean that there are no showrooms or test drives. There's nothing stopping Ford, BMW, Mercedes or whoever from putting in a showroom next to a Tesla showroom. In actuality it makes it easier since a showroom doesn't have to have inventory; you can put them in places where a normal car dealership couldn't exist (this is exactly what Tesla is doing). I saw a Genesis showroom in an airport once...

The thing is Tesla is a luxury car for rich people - upper middle class and above. This means you only need a limited number of show rooms - where most rich people live - and rich people are also pretty mobile, so they can come to you. Scaling the same for car with more broad appeal may be hard to manage for the company, and there's no incentive for the third party to do it if they can't sell. Honda sells 4x more cars than Tesla in the US, Toyota - 7-8x. Can this still be managed by showroom-only? I have my doubts.

The state I live in has 1 (one) Tesla shop. For the whole state. Do you think the other car makers would be able to work with one showroom per state?

I’m guessing EV sale in your state is minuscule compared to ICEs? Why do Tesla need more than one showroom if that one can handle all the sales in the state? Or maybe there are Tesla showrooms in adjacent states that are frequented by consumers from your state?

Also, not all Tesla sales happened after consumers visited their showrooms. Tesla itself planned to close most of their showrooms at some point [0], only to reverse it later. I’m sure they were confident their sales wouldn’t tank when making such decision. One dealer per state may be too few for Ford, how about five? or ten? Do you think Ford can’t afford five or ten showrooms?

[0] - https://www.theverge.com/2019/2/28/18245296/tesla-stores-clo...

Tesla doesn't need more showrooms. But somebody like Honda or Toyota couldn't do with the same one-showroom-per-state model. That's why I have three Honda dealerships and three Toyota dealerships within 30 minutes drive of me.

> Tesla itself planned to close (all) their showrooms at some point,

Maybe for Tesla it could work. For Toyota - they'd be insane to do something like that.

> Do you think Ford can’t afford five or ten showrooms?

They could afford, but that would cost them. And it probably won't be very efficient. For Tesla, whose buyers have little concern for price, and whose meme value is obvious, it may work. For Ford, which very much competes on price and utility with about a dozen other makers, I don't think such a move would be survivable. They could sell one special model this way, maybe, but making whole business - I'll believe it when I see it, done not for a niche rich people's car but by some mass-market vendor.

The Ford electric pickup costs more than a Model 3 Tesla.

You don't even need showrooms to give test drives -- there are companies out there which will drop off a car to your house to do a test drive.

Tesla mostly does test drives out of showrooms, but there is this:

> Tesla occasionally hosts test drive events for those who don’t live near a showroom. You can check out our events page to find regional test drive tours near you.

at the end of the day it allows for more people to have jobs and participate in the economy.

It's not like selling a car is a super specialized skill. We're also at very low unemployment. The people who were selling cars can switch jobs. People switch jobs all the time. Losing a job generally doesn't prevent someone from participating in the economy.

Mechanics can open their own shop or work at a Pep Boys. Likewise, the underwriters can work elsewhere, probably even remotely.

At some point we, technologists, are going to remove everyone’s job from them and we’ll act surprised societal uprisings happen because there’s no jobs available to the average Joe.

This is a problem of late stage capitalism, not technologists or automation per se. A job is only mostly a requirement to have your needs met because our society says it is. It doesn't have to be that way.

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