Would Buying Cars Direct Be Better for the Consumer?

[Wolf359]

The funniest thing about this thread is that Tesla sells direct and doesn't discount off list price. Various dealers have various discounts. So direct with no discounting is somehow better now?

Basically if you're good at negotiations or time it right (end of month/quarter) you can get a good deal. Doesn't matter if you have those skills/timing with Tesla.

 

[UncleDave]

MSRP would be much lower to begin with without the dealer profit markup.

The dealer bumps the cost, then gives a few dollars off the vastly inflated price and people think they "get a deal".

The dealer gets you on the floor, then in the F&I room with the trukote, warranty, maintenance plan...

Sometimes they mark up beyond list if the car is hot - just try to find that mythical 59K vette - it doesn't exist.



With Tesla everyone pays the same price when they purchase.

 

[RooflessVW]

The way I see it, dealers need to exist anyway for service. Their sales department provides additional jobs. Every city in every state has a car dealership.

Dealers also provide you with an avenue for a better deal. Do you think manufacturers will lower prices or allow negotiation on price with a direct sale model? What would their incentive be? Competition? What competition? Keep in mind that by going to direct sales the manufactures would now be responsible for the entire sales architecture including employees (probably outsourced), showrooms (fewer and harder to visit or online only), and any additional overhead including properties, customer retention, etc.

F&I isn't going anywhere either. There will still be extended warranties and maintenance plans, probably offered only by the manufacturer, and sold at a fixed price to the same type of people that buy them now.

Will you be able to buy a car same day? Where will the cars be kept? Are you all expecting just-in-time manufacturing for each car sold? How long will the wait be?

I know everyone here likes to gripe about dealerships but they are, in general, better for the consumer.

 

[CKN]

Direct sales are impossible and it's not because of dealer finance laws. Direct sales are impossible because of us and how we buy cars.

How do the majority (99%) of people buy cars? We go to a dealership and we either buy something they have on the lot or they transact with another dealer to obtain the vehicle you want. Either way, the car you buy is already built, sitting on a lot, ready for your purchase. There is always the opportunity to order a car and wait, but that is seldom used. Why it is this way is a different discussion for a different day, but it is the way it is.

How we buy cars is important because of all that inventory we choose from. Cars are really expensive. Automakers shoot for a 70-days supply of a given model in inventory. For something like Ford F-series trucks, that's about 163,000 trucks. Assuming an average of $34,200 per truck to build, that's $5.6 billion in unsold inventory sitting on the liability side of the balance sheet.

Franchised dealers to the rescue. As soon as those truck are built, they are shipped off to dealers who then "purchase" the inventory using floor plan financing. This gets the liability off the automakers balance sheet and spreads it over the dealer network.

This is how cash flow works in the automotive manufacturing sector and franchised dealers are a key in making it work. To change this will require significant reshaping of financials and customer buying habits.

This is where you say: But what about Tesla? They have a successful direct sales model!

Tesla sold 367,000 cars in all of 2019, worldwide. GM sells that many in 3 weeks.

Tesla is a small manufacturer. The financials of direct sales work at this small scale. Plus, Tesla customers are willing to buy cars the way most of us aren't: Placing an order, making a down payment, and waiting.

As it is now, you can already see Tesla conforming to fit the realities of the financial model. The Model Y really has only two options of consequence: 1) Long Range or Performance and 2) 5-seat or 7-seat. The rest is either easily added/removed (trailer hitch and wheel style), color (exterior/interior), and software (full self-driving or not). When the Model S was launched, there were multiple battery sizes, single or dual motor, different suspension types, and so on. Those a la cart options have gone by the wayside with each new model launch. This greatly increases Tesla's manufacturing flexibility by reducing vehicle ordering complexity.

Also, don't think manufacturers won't get hinky with direct-sales either. The more expensive and more profitable Model Y Performance has a 2-3 wait for delivery. The less expensive and less profitable Model Y Long Range has a 6-10 week wait: "I don't need all that performance, but it'd be cool, plus it's only a reduction of like 20 miles in range. I guess I'll spend the extra money, especially since it means I get my car by early-October instead of late-Novermber. "

Kinda sounds like: "I really don't need everything in the Lariat, but it'd be cool and the dealer doesn't have any XLT on the lot. It's not that much more expensive. I guess I'll go with what's on the lot."

Of course, we could also add in talk about servicing a car park of millions upon millions of vehicles, parts distribution to both the factory service network and independent aftermarket, and employment of all the people it takes to sell and service 17 millions cars each year across the globe. These are all handled by that independent dealer network.

People are now buying used cars on the Internet sight unseen (There are posted pictures). Carvana provides a 30 day-no questions asked satisfaction policy. Hardly any cars these days "blow-up" and need replacement immediately. People have already changed their buying habits (Amazon, Apple Music, Google Play etc., Kroger/Walmart personal shoppers) there is no reasoning why these same things cant be applied to vehicles.

 

[UncleDave]

No reason the manufacturers couldn't simply occupy the same piece of real estate as a 3rd party, offer service, financing etc.

Rather than "Jones Ford" it would be just "Ford"

Competition? that comes from other manufacturers.

It's a give and take deal NADA has worked out with the big 3.
The dealers are guaranteed a low competition business model with assured profit and the ability to rape the customer on desirable models.
The manufacturers get to dump all their production to the channel and avoid inventory buildup by recognizing revenue the minute the truck pulls away from the loading dock.

 

[IndyIan]

I guess with higher volume dealers they become more of a distributor as they get their cars cheaper from the manufacturer, and often can sell cars pretty much at a small dealers cost to obtain them.
Delivery is another annoying fee, I would've liked to have picked up my Subaru right in Lafayette, Indiana to save the $1800 delivery and spend it on a road trip in the new car.

 

[parimento1]

No reason the manufacturers couldn't simply occupy the same piece of real estate as a 3rd party, offer service, financing etc.

Rather than "Jones Ford" it would be just "Ford"

Competition? that comes from other manufacturers.

It's a give and take deal NADA has worked out with the big 3.
The dealers are guaranteed a low competition business model with assured profit and the ability to rape the customer on desirable models.
The manufacturers get to dump all their production to the channel and avoid inventory buildup by recognizing revenue the minute the truck pulls away from the loading dock.

Yes this is what I meant. This way you don’t have some dealers making the mothership look bad by being shady or screwing customers.

 

[wdn]

I buy my GE Appliances direct from General Electric and they are shipped from the factory. It's due to a special business relationship though. I can't discuss the pricing because of a NDA. If it needs service, it is through GE Factory Service in Georgia.

I don't think this model would work for new car purchases though, because car dealerships also have a service department and a parts department. I can't see factory-dispatched auto mechanics.

 

[SevenBizzos]

Direct sales are impossible and it's not because of dealer finance laws. Direct sales are impossible because of us and how we buy cars.

How do the majority (99%) of people buy cars? We go to a dealership and we either buy something they have on the lot or they transact with another dealer to obtain the vehicle you want. Either way, the car you buy is already built, sitting on a lot, ready for your purchase. There is always the opportunity to order a car and wait, but that is seldom used. Why it is this way is a different discussion for a different day, but it is the way it is.

How we buy cars is important because of all that inventory we choose from. Cars are really expensive. Automakers shoot for a 70-days supply of a given model in inventory. For something like Ford F-series trucks, that's about 163,000 trucks. Assuming an average of $34,200 per truck to build, that's $5.6 billion in unsold inventory sitting on the liability side of the balance sheet.

Franchised dealers to the rescue. As soon as those truck are built, they are shipped off to dealers who then "purchase" the inventory using floor plan financing. This gets the liability off the automakers balance sheet and spreads it over the dealer network.

This is how cash flow works in the automotive manufacturing sector and franchised dealers are a key in making it work. To change this will require significant reshaping of financials and customer buying habits.

This is where you say: But what about Tesla? They have a successful direct sales model!

Tesla sold 367,000 cars in all of 2019, worldwide. GM sells that many in 3 weeks.

Tesla is a small manufacturer. The financials of direct sales work at this small scale. Plus, Tesla customers are willing to buy cars the way most of us aren't: Placing an order, making a down payment, and waiting.

As it is now, you can already see Tesla conforming to fit the realities of the financial model. The Model Y really has only two options of consequence: 1) Long Range or Performance and 2) 5-seat or 7-seat. The rest is either easily added/removed (trailer hitch and wheel style), color (exterior/interior), and software (full self-driving or not). When the Model S was launched, there were multiple battery sizes, single or dual motor, different suspension types, and so on. Those a la cart options have gone by the wayside with each new model launch. This greatly increases Tesla's manufacturing flexibility by reducing vehicle ordering complexity.

Also, don't think manufacturers won't get hinky with direct-sales either. The more expensive and more profitable Model Y Performance has a 2-3 wait for delivery. The less expensive and less profitable Model Y Long Range has a 6-10 week wait: "I don't need all that performance, but it'd be cool, plus it's only a reduction of like 20 miles in range. I guess I'll spend the extra money, especially since it means I get my car by early-October instead of late-Novermber. "

Kinda sounds like: "I really don't need everything in the Lariat, but it'd be cool and the dealer doesn't have any XLT on the lot. It's not that much more expensive. I guess I'll go with what's on the lot."

Of course, we could also add in talk about servicing a car park of millions upon millions of vehicles, parts distribution to both the factory service network and independent aftermarket, and employment of all the people it takes to sell and service 17 millions cars each year across the globe. These are all handled by that independent dealer network.

I love this response. Very well thought out and nice examples along the way. I just disagree the cycle of driving to a dealership, two parties lying to one another for two to four hours, and then one of the parties driving home in a car they may or may not have originally wanted is going to be around much longer. I think most agree here it's legislation that is glue holding that business model together.

Locally we have a CarMax that sells new cars. People like buying cars this way. You can easily move all of that online and just imagine if you infused some competition into that.

Some dealerships are now doing the "fill it out all online and we'll drop the car off to you" and they are selling cars. It's evolution. 20 years ago dealerships didn't have internet sales managers. I just think buying a Ford, GM, or other will be much different in 2040, or we'll have 100 new Tesla sized companies handling the new business model that will become the standard model.

 

[JeffKeryk]

The funniest thing about this thread is that Tesla sells direct and doesn't discount off list price. Various dealers have various discounts. So direct with no discounting is somehow better now?

Basically if you're good at negotiations or time it right (end of month/quarter) you can get a good deal. Doesn't matter if you have those skills/timing with Tesla.

When is the last time you saw a Tesla commercial? They take that cost and put it back into R&D. Same with dealerships. Dealerships are the middle man; there is an associated cost.
Tesla has service centers for service and parts. By the way, there is far less service required for a Tesla.
As for parts, there are about 20 moving parts in the Tesla drive train. Brakes are expected to last 150K miles or more, due to regenerative braking.

This is the business model of the future.

 

[Wolf359]

I love this response. Very well thought out and nice examples along the way. I just disagree the cycle of driving to a dealership, two parties lying to one another for two to four hours, and then one of the parties driving home in a car they may or may not have originally wanted is going to be around much longer. I think most agree here it's legislation that is glue holding that business model together.

Locally we have a CarMax that sells new cars. People like buying cars this way. You can easily move all of that online and just imagine if you infused some competition into that.

Some dealerships are now doing the "fill it out all online and we'll drop the car off to you" and they are selling cars. It's evolution. 20 years ago dealerships didn't have internet sales managers. I just think buying a Ford, GM, or other will be much different in 2040, or we'll have 100 new Tesla sized companies handling the new business model that will become the standard model.

I'm not sure that just because Carmax is successful is reason to believe that people like it. There's a certain amount of people who get taken at the dealers and they're better off at Carmax. The rest of us find Carmax overpriced. The only good thing about it is that they tend to offer higher than average trade in values and have a decent warranty on a used car. But you pay for it, they are at the top when it comes to retail purchase price.

Some assumptions that people are making is that by eliminating dealers, that will lower the price of the car. What if instead of lowering the price, they just increase their share of the profits? Just look at Apple, they don't sell as many phones as Android, but they have a larger percentage of profits. They didn't lower the prices. Intel basically controlled the price of chips, once the development costs are paid off, it's just a few dollars for a chip that they charge hundreds for.

I also find Tesla products somewhat overpriced. And they really limit what info they put out and good luck trying to find a source for discounted OEM parts. There's no dealers so no one is going to discount factory parts 20-30%.

This kinda reminds me of how real estate agents are going to obsolete soon, heard that one over 15 years ago.

 

[clinebarger]

No reason the manufacturers couldn't simply occupy the same piece of real estate as a 3rd party, offer service, financing etc.

Rather than "Jones Ford" it would be just "Ford"

Competition? that comes from other manufacturers.

It's a give and take deal NADA has worked out with the big 3.
The dealers are guaranteed a low competition business model with assured profit and the ability to rape the customer on desirable models.
The manufacturers get to dump all their production to the channel and avoid inventory buildup by recognizing revenue the minute the truck pulls away from the loading dock.

So the Manufacturer would strip the franchisee of their franchise & just occupy the same Real Estate?

 

[Wolf359]

So the Manufacturer would strip the franchisee of their franchise & just occupy the same Real Estate?

And I wonder if the manufacturer would sell used cars. Most dealers also sell all different brands of used cars in addition to their own. Some buyers feel that the dealers are a bit more reputable than just pure used car lots.

Does Tesla sell used cars from other makes?

 

[UncleDave]

So the Manufacturer would strip the franchisee of their franchise & just occupy the same Real Estate?

They could. More likely a manufacturer would build to a design standard across a given geo.

Car dealerships are everything from nice to looking like a bombed out suburb of Kabul.

I'm pointing out that just because the manufacturer sells direct doesn't mean they cant have a service business, or a parts counter or inventory on a lot.

 

[Wolf359]

I don't think the dealership model is going to go away for a long time. Too much invested by the dealers for the auto makers to just buy them out.

These kinds of threads seem to come up all the time. But you mind as well try to figure out how to get rid of credit cards. All they do is charge merchants an extra 2-3% on the transaction cost. So in theory if you eliminated them, they could lower their prices another 2-3%. But it seems that people spend more when they have credit cards so just by getting rid of something doesn't automatically mean it will be cheaper.

 

[IndyIan]

I don't think the dealership model is going to go away for a long time. Too much invested by the dealers for the auto makers to just buy them out.

These kinds of threads seem to come up all the time. But you mind as well try to figure out how to get rid of credit cards. All they do is charge merchants an extra 2-3% on the transaction cost. So in theory if you eliminated them, they could lower their prices another 2-3%. But it seems that people spend more when they have credit cards so just by getting rid of something doesn't automatically mean it will be cheaper.

I guess its legislation, or the CC companies won't allow a retailer to charge less for cash or debit purchases? I recall seeing truck stops in the past with separate cash and credit card prices which I would prefer as well. Car dealerships seem to be exception though as they won't allow CC purchases. With equal CC and cash prices it makes sense to use the CC all the time to get the rewards.

 

[Wolf359]

I guess its legislation, or the CC companies won't allow a retailer to charge less for cash or debit purchases? I recall seeing truck stops in the past with separate cash and credit card prices which I would prefer as well. Car dealerships seem to be exception though as they won't allow CC purchases. With equal CC and cash prices it makes sense to use the CC all the time to get the rewards.

There's lots of other things where there are middlemen. Amazon is a major middleman, when do you think they will disappear when manufacturers go direct to consumers? Restaurants usually buy from some wholesalers. Wholesalers are a major set of middlemen. There's basically value added that wholesalers and middlemen add that disappears if you go direct. Microsoft could sell their software directly to consumers but retailers sell it too.

 

[IndyIan]

There's lots of other things where there are middlemen. Amazon is a major middleman, when do you think they will disappear when manufacturers go direct to consumers? Restaurants usually buy from some wholesalers. Wholesalers are a major set of middlemen. There's basically value added that wholesalers and middlemen add that disappears if you go direct. Microsoft could sell their software directly to consumers but retailers sell it too.

I've bought a few things off of Alibaba which is direct from the manufacturer, and from Aliexpress which is just resellers still in China, and of course Amazon who ships a container or 10 full and sells them from here.
Amazon is useful if you need something quickly but most of the time I'd rather just buy from Alibaba or Aliexpress for the much lower price. Lately I've been buying lower end bike parts and RC cars for the kids to smash so going through amazon or their resellers isn't worth their mark up as I can wait a couple weeks for stuff to come from China.
Most stuff on Amazon is from China and if a manufacturer can put together a decent website with actual specs and good customer feedback I'd feel fine buying direct and cutting amazon out.

 

[IveBeenRued]

I too have never had a dealer know more about the car that I was buying than me.

When shopping for my RAV4, it took talking on the phone to 8 dealers before I finally got one that wanted to play ball. Every conversation was the same “I’ve looked at your inventory online and I see that you don’t have the vehicle I want. Can you do a factory order for me? We are not in a rush and I’m OK with waiting.” Every single dealer would respond with something along the lines of “Well we have 40+ well equipped RAV4s on our lot, why don’t you come in and we can talk about the features you want.” I’d tell them what I wanted and they would always just say to come on in.

I finally got a nice dealer on the phone that recognized immediately that I wanted a specific feature set that he didn’t have, he asked for half an hour to see if he could find it in the region and after he couldn’t he immediately said that he could do a factory order for me. We talked price for about 5 minutes and I got him to $1,400 below the Costco price and he ordered it that afternoon. He kept me appraised of the order status and the first time I actually met the dude in person was when I was writing him a check for the vehicle. We did the same thing with our Subaru back in 2011.

My and I never even go to the dealership until they have our custom ordered vehicle in hand and ready for pickup. I’m not the only millennial that buys cars this way and car companies are very slow to catch on to this fact. Tesla seems to be the only company that is evolving at the same pace as the consumer.

 

[OppositeLocK]

I buy my GE Appliances direct from General Electric and they are shipped from the factory. It's due to a special business relationship though. I can't discuss the pricing because of a NDA. If it needs service, it is through GE Factory Service in Georgia.

I don't think this model would work for new car purchases though, because car dealerships also have a service department and a parts department. I can't see factory-dispatched auto mechanics.

Your post comes off as a non-value added humble brag.