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A dentist’s office, a car dealership, an elevator that’s too crowded and hot. These are some of the worst places in the world. Why can’t car manufacturers sell directly to us? Why are we always forced to deal with shady car salespeople?
Every car manufacturer has to play by certain rules when it comes to selling their vehicles. There are a number of laws that strictly prohibit a manufacturer from selling directly to their consumers. It is highly illegal for Ford to sell you a car and drop it off in your driveway. The only exception is Tesla, but that’s because they’re using a loophole (more on that later).
In this piece, I’ll explore this question and answer it. You might be surprised to learn that dealerships are banding together to force us to deal with them.
How Do We Typically Buy Cars?
If you haven’t bought a car before or worked with a dealership, give me a second to explain it. The premise seems really screwy but it’s something that we just accept.
We buy cars through dealerships that buy the car from the manufacturer. The dealership determines everything, and the manufacturer is in on it.
To explain things, let me make up a case study and walk you through it.
Fake Case Study: Buying a Mustang
You made up your mind, you want to buy a Mustang GT Premium Convertible. Gorgeous car with unbelievable power.
In a warehouse somewhere in Michigan, Ford puts together a beautiful Mustang. Between marketing, labor, parts, and R&D, let’s say Ford dumps in $32,000 per Mustang GT Premium Convertible they make.
They manufacturer a few hundred and sell them to dealerships in the area. A dealership might pay them about $35,200 per car and get a nice fleet deal.
The dealership polishes the cars, puts them in a row, and slaps on stickers that say, “$45,785”. This is Ford’s MSRP, after all.
You go in, pick the exterior and interior color you like, choose the one that has the right options, and start talking to the salesperson. You go back and forth and shake hands over a $42,000 price.
You just wasted 10 grand and a full Saturday morning.
Determining What the Manufacturer Spent Manufacturing a Car
This isn’t an exact science, but it will get you pretty close. If you look at Ford North America’s financial statements, you’ll see that they have about a 10% markup on all the vehicles they sell.
A “markup” is the money they add so they make a profit. An item that costs $10 to make and is sold for $11 has a 10% markup.
The dealerships are a little tougher to gauge when it comes to markups. They could sell a car for a 200% markup if they found the right sucker.
Let’s just pretend that they have the same markup (although I can almost guarantee it’s higher than 10%).
Every time the car passes from one set of hands to the next, the price goes up. You, the unlucky final pair of hands that gets the car, have now just spent 20% in just markups.
20% on that $10 item isn’t a big deal, you can just break open your piggy bank. That same 20% markup on a $30,000 item is a whopping 6 grand. Not chump change at all. The worst part is that it serves no purpose other than being a pure profit for Ford and the dealership.
Ford is smart and they know that customers are going to do their homework. For that reason, they’ll put out a Manufacturer’s Suggested Retail Price (MSRP) that’s wildly inflated beyond just a dealership’s markups.
For instance, they might say their $30,000 car has an MSRP of $42,000, a whole 40% markup. After all, it’s just a suggestion so there’s nothing legally binding about it.
You might think you’re getting a rad deal on their car, but you’re just getting scammed.
So, if you want a general rule of thumb, multiply the MSRP by 0.7 and that’s roughly what it cost the manufacturer to make it.
Why Can’t Car Manufacturers Direct Sell to Consumers?
You’ll notice that I say “can’t”, and not “won’t”. This is a big distinction. The reason is that there are several laws that flat-out ban direct sales to consumers.
Not only that, but it’s also illegal for any manufacturer to open up their own dealership. All dealerships have to be completely private and unrelated to the car’s manufacturer.
When you shop with Sunshine Ford, you won’t see an assembly line in their backroom. They are buying vehicles directly from a Ford manufacturing site and selling them to you.
It’s also important to point out another distinction. It isn’t illegal for you to buy directly from the manufacturer, it’s illegal for them to sell to consumers. Otherwise, you would have groups of outlaws cutting corners and illegally buying from manufacturers, and saving a ton of money.
It’s Just in America
A loophole is that you can technically buy a car directly from a manufacturer overseas and then have the car imported.
As a consumer, this isn’t a financially wise decision. By the time you work out all the international fees and shipping woes, you’ll spend more than if you just got it at a dealership.
Still, it’s weird that this is just a law pertaining to American-made cars selling to American customers. We’re supposed to be a free market, but we can’t even buy a product from the person who made it. It’s like McDonald’s selling their burgers to another store that sells them to you. Weird and unnecessarily expensive.
Okay, I’ll get off my soapbox now.
But, What About Tesla?
Some people might be a little confused if they have a Model 3 in their driveway. You didn’t go to a Tesla dealership to get the car.
A common misconception people have is that it’s illegal for Tesla to have a dealership. The truth is that the brains over in Tesla just decided to go for direct-to-consumer sales using a little loophole.
Wait a minute, how does that make any sense? I just spent all this time talking about how illegal it is for a dealership to sell directly to a consumer.
To cut consumer costs and have better control over their product, Tesla made it their model to sell directly to you by using an international importer.
You’ll go into a Tesla Gallery or use their site to look at their cars and build the perfect option. In their Gallery, everyone you see is working directly for Tesla, not a third party.
When you sign the paperwork and write a check, Tesla pings one of their international warehouses to send the car overseas directly to you.
Since you’re buying from a non-American company, these direct-to-consumer laws don’t pertain to you.
As of today, Tesla is the only American-based car manufacturer that offers direct-to-consumer sales. Obviously, dealerships aren’t too happy about that. They have lobbied against Tesla and even took them to court on multiple occasions.
As a result, 10 states completely ban Tesla sales within their border. Another 8 states have a single-digit limit as to how many Tesla Galleries can exist in their state. Another 12 states have nearly unrestricted direct sales, and the remaining 20 are in a gray area.
If Tesla is willing to fight court case after court case to avoid using dealerships, something must be deeply wrong with dealerships.
What’s So Bad About Dealerships?
The dealership is a four-letter word in a lot of households. Personally, I hate going to a dealership. It’s nothing against the individuals working there, it’s all about the whole premise.
They’re marking up a product 30% or higher for no reason at all. If we could vote on the matter, I’m willing to bet most people would vote to destroy dealerships and work directly with manufacturers, instead.
Dealerships use old-school and shady sales tactics to rob you. They’ll slap a sticker on a car with a price that’s inflated to whatever they choose. A $20,000 car could have a $50,000 sticker on it and there’s no real penalty.
From there, they can pretend they’re being very generous and take off $10,000 since you’re a special customer. Now you’re only paying $40,000 for a $20,000 car. Outrageous, right?
There’s nothing dictating the prices that dealerships use. If the finance guy wakes up on the wrong side of the bed, every customer leaving the lot could be getting ripped off.
Actually, I take that back. Whenever we leave a car lot we’re getting ripped off. Even after negotiating a great price for a used car, you’re still wildly overpaying since you’re working with a middleman and not directly with Honda.
It’s All a Numbers Game
The more digging you do, the more obvious it becomes — it’s just a matter of money and numbers. Dealerships are making huge profits by simply taking a manufacturer’s car and selling it to us, the consumers.
The fact that dealerships even exist is proof positive about the money up for grabs.
How do these laws stick around? Well, dealerships funnel massive amounts of money to politicians and legislators to keep it that way. There are state-level laws that prohibit manufacturers from selling directly to consumers. The only option left is to go through a dealership.
The Manufacturer Sees the Money Either Way
This is so obviously predatory, so why don’t manufacturers do anything about it? Why should they? They see the money either way.
Dealerships are paying manufacturers for their cars, so there’s no reason for Ford to fight against dealerships. If someone was paying you $100 for a chair you made, then they sell it to someone else for $150, why would you care?
It’s the same reason why Nike doesn’t care about their shoes getting sold aftermarket to Hypebeasts.
The money is still stacking up in their pocket, regardless of who is paying them.
The Potential Future of Car Sales
Maybe I’m a little hopeful, but I think there’s a potential in the future for this model to change. The best option would be if self-driving cars took off, so we won’t even need to own a vehicle. You could just summon one and have it pick you up.
Still, I think consumers should challenge this idea of being forced to work through dealerships. I love what Tesla has done so far and I’m hoping to see more manufacturers step up and follow their lead.
Conclusion
As I just explained, buying a car directly from a manufacturer is illegal for some dumb reason. When there’s this much money at stake, middle-class Americans get sold out in the name of more money in the pockets of dealerships across the country.
Do you find this topic as frustrating as I do? Let me know in the comments. For more car questions answered, look at the rest of my blog. I also have some products that I highly recommend for car owners.
Let me preface this by saying I am in the car business for over thirty years, with a loyal and trusting clientele.
There are some premises that are wrong with your article. First of all the dealer does not set the MSRP, the manufacturer does. Mark up is no where near what you are saying, on most new cars it is on average maybe $2,000 or less. And any discounts come from this amount.
Independent dealers, pay interest on inventory, pay salaries for the workers and salespeople out of these profits. The people working there also keep the local economy going. They must maintain service departments and keep them current for any and all equipment needed.
In most cases there is a service department within a few miles from where ever you are. Unlike Tesla where you may need to travel quite a distance for a repair center.
I’m not saying that there are not some shady dealers, but most are honest, hard working and look to create a trusting relationship with their customers.
Thanks for providing some feedback. I agree that currently, New/Used car dealerships employ a lot of people and that’s a not insignificant part of the American economy. I’m a fan of Tesla selling methods due to the stigma attached to car dealerships, however, there are some pretty major drawbacks in terms of service/maintenance concerns with Tesla that I may address in a future post. For one, parts are much harder to come by, but thanks to eBay and car-part, that has been less of an issue. Another problem is the fact that Tesla can often times have a very long waiting list for a car to be serviced by a Tesla authorized automotive shop.
I personally worked as a car salesman for almost a year before I realized that it wasn’t for me. The things I saw other salesman doing, upper management expectations, etc…long story short, I started focusing on automotive electronic repairs, and have been doing that for over a decade. In regards to the mark-up over MSRP, with the current semi-conductor shortage, inflation, stimulus checks, and PPP, I find it hard to believe that a dealership is only marking up a vehicle for only $2,000 or less. In a recent study done, car prices are now going for an average of 25% more than what they would’ve been sold for before everything that’s currently going on.
Sounds like you worked for a shitty dealership with a bad culture. Dealership=business. Business requires profit. Profit=not a dirty word. Just because you got taken by someone without doing your homework doesn’t mean that’s commonplace. Better luck for you next time.
I agree that being taken advantage of shouldn’t be commonplace in the world of automotive sales. Thanks to online consumer reviews, it’s relatively easy for someone to see which dealerships value customer service and long-term relationships.
Profit for who, a useless sales guy, finance guy and manager? Look at sales right now… $6K markups on $50K cars, when the true cost of production is probably in the $35-40K. That’s a $21K fee that you as a consumer have to pay just because. Even if a dealer is so great, and so magnanimous as to sell 2-3% below MSRP in this example, you’re still giving them ~$10K over what the vehicles costs to get produced, get outta here!
It’s not profit it’s called gouging. Dealers get vehicles at dealer prices, selling them at MSRP + markup. It’s greedy, clearly you work for a dealership lol
Thank you for your insights into this interesting subject.
I have been in the auto industry for 40 years and understand some of your comments. As always there are good dealers and bad dealers and we should not judge them all in the same way.
The MSRP is set by the manufacturer but the clue is in the title ‘recommended’ and can be ignored by the dealer. In reference to your comments regarding margins, this is highly topical as ‘supply and demand’ becomes a factor. More recently with a lack of supply following semi conductor shortages and the impact of the war in Ukraine vehicle supply has been limited. This has also impacted the cost of manufacturers assembly (parts availability and cost increases). This has meant that dealers have not had the supply of vehicles that they wanted and as a result customer demand has increased. It is therefore understandable why dealers have increased pricing to accommodate vehicle cost increases and supply limitations (after all their cost base did not get lower). The issue is and this is the difference between a good dealer and a bad dealer is “how much” margin is enough? This should be sufficient to cover all costs and make a ‘reasonable’ profit!
My question to you is, if Tesla ( a US based company) have managed to find and work a loophole whereby it uses international vehicle sales to supply vehicles then why is it not possible for other manufacturers to do the same? Given that most brands will need to ship and clear vehicles into the US anyway what other costs are there that will impact the final retail price?
Hi George, as far as I’m aware the main factor is not necessarily international supply that allows Tesla to do direct business-to-consumer transactions but rather that you are technically purchasing a vehicle online or over the phone and awaiting delivery of the purchased vehicle. Even if it is a brick-and-mortar location where anyone can walk in.
Due to a lot of red tape and bureaucratic laws both Federal and State, currently, this is really the only way a vehicle manufacturer can sell directly to a customer without needing a middle man i.e. a car dealership. Recently the CEO of Ford has mentioned that he is open to adopting this business model as he’s very aware of the car dealerships asking for way more than MSRP for their vehicles.
Sorry, but your info is a bit out of date, specifically about this portion “Mark up is no where near what you are saying, on most new cars it is on average maybe $2,000 or less. ”
Look at the new Corvette, Toyota supra. Both of these cars have MSRP <$60k but frequently are sold at dealerships for more than $60k. In the corvette's case, it is being sold for more than double its MSRP with virtually every listing being 100k+.
That’s because there is only a limited amount of those vehicles made and the dealership gets a limited number of allocations for them. If you sold water for $1 per bottle and your water supplier came out with a long awaited, super duper special water but said you can only have six of those bottles to sell, would you sell them for $1 out of the goodness of your heart like your regular water or would you try and get as much as you could for them?
That’s how supply and demand works.
tell me again why the hell would I pay your employees their salaries without telling me. I don’t want or need your relationship, I like a car that I buy, don’t need your friendship that try to scam me for more than a car is worth. dealerships are just another name for black market.
That’s one way to put it.
Personally I don’t need dealerships either, in fact, because I have a really professionally equipped shop at home, I wish I could by a car without warranty and a corresponding deep discount.
However, most people are unable to work on their cars and they RELY on a dealership network, at the very least for warranty work. And most good dealers make warranty repairs very convenient and it is this type of service that many if not most new car buyers prefer.
In fact one of our friends who bight the Tesla has already regretted it, exactly for that reason. She used to lease her cars and get a loaner car every time she has dropped it off for service or any repair. For her this was a guarantee for mobility. With her Tesla it is a whole different ballgame. Yes, a Tesla technician came already twice for a repair to her house, but both times she had to be there and lost a days work as she was not able to use the car on that day due to the whole ordeal. Additionally (bad luck) she got into a fender bender twice already as well. Both times the repair was excruciatingly long due to only certain shops able/allowed to work on Tesla. On the first occasion the paintjob was of such poor quality, that she had to had it redone, so more waiting without a car.
Quite frankly, I have the fear that exactly the no dealership option will at some point come out VERY much against Tesla, as more and more legacy companies with their dealership support are also getting into the electric car market. At that point Tesla will become just another electric car company, except without the benefits of a dealership support network. Unless of course Tesla is able to pass on their savings (from having no dealership network) to their customers.
You are so full of it. There are thousands of examples of dealers currently marking cars up 20-100k using the Chip shortage as justification. Dealerships should never have been given a monopoly on car sales in the first place, period. No matter the amount of mark up. And if I were wrong, you all would not have the reputation that you do. A car salesman is synonymous with a backstabbing, dishonest, snake oil salesmen. No one likes you, respects you, or wants to do business with you, and if you believe otherwise than lobby for direct manufacturing sales and out compete them in a fair market environment but we both know you wouldn’t sell a single vehicle if that were the case. All your “loyal” clientele are literally being forced to do buisness with you, so spare us your self congratulating.
I can’t thumbs up, so i am acknowledging you here.
I legit avoid buying a new car as long as possible just to avoid the headache that is the fake smile and theft of a car dealer. I can’t stand them.. I always ask to see the recipt that they paid for the car, i read all the fine print and i refuse to pay for advertising and marketing fees, etc. My first car, they wanted to charge me $150 for some kid to fetch my plates… ill do it myself thanks.
That comment didn’t age well.
Dealers are absolute garbage and we wouldn’t deal with them if we didn’t HAD to. Even the best dealer out there is making money off consumers for a service of NO value. Imagine a world where you buy at invoice from the car manufacturer and have them establish relationships with local car shops for warranty service and repairs. That’s what we want, don’t doubt for a second that we all hate you.
I’ll preface by saying I’ve spent the last 9 months doggedly going after a new truck or SUV and I can vouch for the egregious markups. Not only that, dealerships are selling so many cars, they don’t give a crap about customer loyalty, they absolutely do not need you. The whole thing has gone to the birds, and I won’t buy into it.
Your article talks about mark up in general of dealerships day to day and as Vic stated and i agree with ,it is no where near what you stated in this article in normal times, and Vic is correct on the manufacture sets the MSRP not the dealership .
I have been in the car sales for 21 years and I see you did it for a year. I can tell you that car dealerships and sales personal are not what you saw. Not saying that some sales people and management at some places things you saw didn’t happen or don’t (but those are not true car dealerships who care about their customers or they are more like pay here rip off wholesalers) but can say that it is not the normal at all and they do not last long in the business.
Car dealerships also have changed and evolved with the times and things have changed on the way a consumer buys a vehicles today when you come in and the customer is in control more then they realize these days and I think it is great.
Now in your response mentions todays market with the conductor chip shortage and mark ups.
EVERYTHING from appliances, food, soap, furniture, wood, steal, aluminum, etc I could name a lot of things ALL have ridiculous mark ups right now due to shortages of materials. Depending on the manufacturing and materials I have seen as little as 10% and as high as 300% which trickles down to price increase to the consumer.
Supply and demand they say right, we all know supply and demand .
I know the car manufactures have always taken the hardest criticism when it comes to pricing but I Know even you going to a restaurant right now they are seeing increase on their supplies from their Distibutors of 30% to 70% that is trickling down to raised prices to the consumer to cover their cost .
Now the reason I mentioned some of these things is in your article talks about being able to buy directly from the manufacturer of a vehicle maker.
Why is it just vehicles that people want to be able to buy directly from the manufacturer from ?
It is so talked about that you can look back years and years of this debate but
Everything that is manufactured and is in a store has a mark up from what it cost to make it . You have to get the material , pay the over head to run the plants, the employee, ship it, stock it ,packaging, etc So by the time you buy it a store ( aka dealership) it may have cost $1.00 to make , $3.00 for the store to buy to resell, but you pay $12.00 to own it .
So why do I have to go to a Best Buy to buy my washer and dryer set for $5000.00
when I should be able to go directly to Maytag the maker ,manufacture of the product and pay $1000.00 .
So a car dealerships works just like a grocery or clothing or furniture store etc.
Everything sold in these stores comes from a manufacturer whom they purchase the products from to resell to the consumer .
So again I ask why is it Only vehicles that we should be able to buy directly from a manufacturer and not anything else ?
You have a fair and valid point. Yes, everything has been rising in price due to inflation and semi-conductor chip shortages. I think it’s a little different when you take for example purchasing an appliance unit from a hardware store. Someone might be going there to buy other house supplies for the home, so it makes sense for stores like that to offer a one-stop solution. Another thing is you don’t have a salesperson pressuring you into buying an appliance unit and a sales manager watching from the sales tower to make sure the customer doesn’t leave without good reason.
There has always been a stigma attached particularly with the purchase of a vehicle and the entire atmosphere can be off-putting for some. It’s good to have competitive innovators like Tesla offering an alternative. It’s not for anyone but I believe customers that want to simply purchase a vehicle without feeling pressured, should have the freedom to choose so.
Just say you are high rank in a car dealership want to continue to siphon money out of people.
You can buy iPhones directly from Apple. Apple FORCES a uniform price, if people want to discount that’s money they are losing. But being in the spirit of being pro competition and capitalist why are dealers so afraid of competition!? Allow manufacturers to open retail stores just like Apple does! And allow dealers to exist, No excuse other than greed to endorse authoritarian anti competitive practices.
Seriously? How can you compare inflation with markups?….
The car I want has a 38k sticker price, but the dealer want’s me to pay 50k.
The dealerships are not like grocery stores…
What are you talking about? I can buy an Xbox directly from Microsoft. I can buy Levi’s directly from Levi’s. I bought brand new adidas shoes guess where from? Adidas! Cars are the only damn place I can’t buy directly from the manufacturer. I won’t rest until dealers are dead and franchise laws are dead. They offer no value and waste my time. Compete with them you damn communist. Imagine going to Best Buy and you get a different price for the same washer that I got because you haggled. Ridiculous.
Here is a link to buy Maytag directly from Maytag…
https://www.maytag.com/washers-and-dryers/washers/see-all.html?plp=%3Arelevance%3Acategory%3AWashersandDryersWashers%3AinStock%3Atrue&plpView=list&cmp=mtg:wp_mda|01|00516|nb|se|t09|p26|zz|v04_mtg_ppc:ga:ps:txt:txt:cpc:nb_sea_washer:na:na:15026445985:126600110097:t
Personally, I think the issue is the fact that the manufacturers are prohibited from selling directly to the consumer. If dealerships make the most business sense to them, they should be allowed to limit their sales to dealers. If consumer direct makes more sense, they should be allowed to pursue that strategy — and incur the selling and service support expenses that go with it! It’s working for Tesla in part because EVs require much less service than ICE vehicles. Combine that with autodriver technology and the business model realities will change — and business models (including dealerships) will be market-forced to adapt.
That’s certainly true that EVs typically require much less maintenance in comparison to an ICE vehicle. I definitely agree that we will probably see a shift in how cars are sold in general, now that most manufacturers are spending more than ever before on their future lineups that are primarily EVs.
We should be able to purchase a car from any dealer or manufacturer that we choose. We are all capable of conducting the due diligence to satisfy our need for getting a fair deal. In Connecticut we are prohibited from buying a Tesla, to the satisfaction of the dealerships and their lobbyists.
You can buy a $5000 computer or 20 of them directly from HP on line, delivered to your door.. Why not a car. My money, my risk.
Agreed, consumers should be able to choose without some intervention. Hopefully, more states drop this nonsense about doing what’s best for us when it comes to purchasing a vehicle.
can we create a petition or something similar for the government to look into this matter. I have tried to buy a car during this pandemic and the prices which the dealrships are quoting are outrageous. So I called the car manufactures myself and I was told that there is nothing they can do about it and its up to the dealerships discretion but never made sense to me until I read your article and I really liked the facts mentioned in it which are truly eye opener.
I appreciate the feedback! Yes, unfortunately, there aren’t that many dealerships at this current moment that are selling at actual MSRP. Most are selling well above that because of the semi-conductor shortage. Just take the Ford Bronco as an example, MSRP is somewhere around $39,000 but in reality, most dealerships are selling those well above that, sometimes even more than double.
The car salesmen commenting on here are bending the truth. As someone who is looking to do a factory order, i have been looking at suv’s at multiple car dealerships and different brands. Most dealerships are adding anywhere from $7000 to $25,000 for fair market value. What? Vehicle prices are already up anywhere from 6-10% as it is. Then add another 7-25000k on top of that. If it wasn’t a problem at dealerships, then why has GM and Ford had to warn dealerships about the practice. Another reason to be able to factory order direct through the manufacturers. Let the dealerships feel it for once.
Doesn’t it make it harder for a new manufacturer to start building cars if they are not allowed to sell them?
It certainly can make it harder, especially if local State legislators and lobbyists enforce more red-tape which prevents Manufacturers like Tesla from doing business in certain states.
So are the people on here that are pro dealership saying that inflation, chip shortages, etc is causing dealers to do these markups? Wouldn’t that be the manufacturers that are taking the hit, so the dealerships profit would still be intact. So, if the dealership is paying more for the thing that they don’t even produce, then that would entail doing trickle down economics, but the MSRP has stayed relative the same. I am willing to pay the MSRP. Everybody profiting, everybody happy. What say dealers? We got a deal?
As of right now in 2022, it’s been reported that 82% of new car buyers are paying over MSRP. Dealerships are definitely getting good mark-up profits from their inventories.
Wow. You seem to have left journalism at the door man. I truly don’t know where to start, but I’ll try.
PROFIT MARGIN isn’t what the manufacturer sells the car to a dealership for minus cost to manufacture. It’s what they sell all the cars to a dealership for MINUS all costs. That includes things like warranty claims, marketing, r&d, recalls, transport, storage, labor force, LOBBYING, and more. All revenue minus all costs. That’s profit. Among ALL manufacturers that averages out to about 7.5%.
Tesla is north of 10%.
New cars do not have 20-30% in mark up from invoice to msrp. It doesn’t happen. Per your example, the invoice on that gt premium convertible is circa $44,500 with an msrp of circa $46,500. That’s 2 grand. Aka 4.5% mark up. The dealers might also get some hold back and financial of 2-4%. So in a perfect world selling at list the dealer can make circa $4,000. That is, of course, before paying the bills, like with storing cars (assuming it was stored), putting gas in it, pre delivery inspections (you would be absolutely floored if you knew how often manufactures send out cars with significant issues), and of course paying their sales force. Mr know it all may think he doesn’t need any help or have any questions but it’s very rarely actually the case. These cars are complex and the similar models both in brand and out make it increasingly important to know what the hell you’re talking about.
In a vacuum, cars would be cheaper without dealerships “increasing the cost”. In the real world dealerships check one another. Prior to the cluster F that is covid when’s the last time you paid MSRP for a vehicle? Let alone MSRP plus. It almost never happened. It was a race to the bottom for dealers trying to move inventory. Who did tesla compete with for pricing? No one. They keep raising and raising the prices. Look at the current cost for “autopilot capabilities”. 12 grand. 25% of the cost of a model 3. 34% of what he promised a model 3 would cost. Competition is good for the consumer. Very good. Everyone was happy to pay under MSRP. No one was complaining when dealers weren’t honoring the MSRP and they were being sold for less. I don’t like mark ups more than the next person, but it’s a bit hypocritical to hold the MSRP up as gospel when we were all too happy to ignore it when it was in our favor.
There are many many bad dealerships. There are also many many great ones that make the buying process easier, safer, more affordable, and more convenient. If you take away that requirement you’re handing all the power to A company like Gm. If you’ve ever had to deal with them fighting a warranty claim you’d know just how anti consumer they are. If you’re local gm dealer treats you like crap you get to drive down the road and give the next place a chance. How much bargaining/negotiation/choice do you have with Tesla. How much would you have if it was GM that treated you bad? ZERO. Keep in mind that you don’t get both. Once car manufacturers can sell direct to customers with effectively zero legislation your car prices aren’t going down and new car dealerships are dead in the water. So you have the same window sticker with less power and less agency. It’s very straight forward supply and demand. There’s one supply and if you want your new Chevy fix you’re stuck. Not exactly a win for the consumer.
You’ve laid out some excellent arguments. I appreciate the feedback. While I do agree that prices before the pandemic may have been justified, they simply don’t make sense anymore. Sure the experience of a test drive, speaking with someone incentivized to sell you something based on commission, and dealership operating costs may justify a mark-up, most dealerships at the current moment are sometimes doubling the cost if not more over MSRP simply because they can. That’s not to say all dealerships are doing this but the ones that are certainly can be seen as disingenuous. For example, the 2022 Ford GT500 Mustang’s MSRP is $89k, but as of late, many dealerships are selling them for over $139k. It’s getting harder and harder to find a dealership that’s actually selling at MSRP or lower for newer vehicles.
Dealerships do not add value. They cannot exist except by law. The fact that dealerships used to sell vehicles below MSRP is just a reminder that MSRPs were already artificially inflated. Whether their profits are 40% or 7% doesn’t matter, because they aren’t “making” that money. They are collecting it solely by virtue of their privileged position with lawmakers.
Ask yourself this, if you where to sell your used car, what would you ask for it? Most people selling there used car want just as much as they can get. There isn’t any difference then what Dealership are doing. It all comes down to ones morals. Its hard to fine a person selling a used car with morals as it is the same for Dealerships. When profit rule the way we connect business we lose a lot of the argument when in return it is done to us. Please fine a trust worthy dealership that truly value a customer and stick with them. If you fine out that Dealerships are ripping people off, please tell other, and never conduct business with them.
With online presence and exposure, it’ll be harder for any dealership to get away with unethical practices. Finding a reputable dealership that makes the overall experience of purchasing a vehicle more pleasant without being confrontational or pushy is a good start. The top-tier dealerships typically are better at trying to understand what the customer is actually looking for and then showing them what’s in the inventory that would meet their needs.
Bottom line, all dealers aren’t the same any more than all lumber companies or grocery stores are the same. Markups vary. You don’t like local find a dealer on your lap top that is selling for less. It would be interesting to see consumer comments after being exposed to a vehicle drop shipped in their driveway with issues. Physical, mechanical or otherwise. Good luck with getting those issues handled through the manufacturer. If you think cars are delivered to dealers with pretty little bows on top you are mistaken. Chips aren’t the only inventory issue. As with most industries shipping, rail and trucking are unable to keep up with demand. Some of the largest vehicle markups fall under a Limited Production heading. Examples would be Corvettes, current new body style Bronco’s and Ram TRX trucks. Supply and demand. As for Tesla, great car, substantial future, however ask a current owner where the vehicle goes for maintenance or re call updates. EV’s are the future of the Automobile Industry. No argument there. Technicians are replacing old school mechanics at an alarming rate, like it or not Dealers will have to be a part of that.
Indeed, it’s getting harder to find mechanics that know how to work on older vehicles that have carburetors and vacuum lines. Most people working on cars today are like you mentioned technicians with OBDII scan tools. The industry as a whole is slowly moving towards electric vehicles.
This article is truthfully very sad and obviously written by someone who has little knowledge of the industry or the impact that car dealerships have on communities.
I appreciate the criticism. What are some of the more obvious points you disagree with?
The car dealership model is an industry that has outlasted it’s usefulness. With how fast information and goods are distributed (covid era excepted), retail buyers should not be on the hook for keeping the dealership industry afloat. They have shown recently just how predatory they are, which isn’t all their fault, they are capitalists and see an opportunity to make an extra profit but it is the fault of the politicians that are forcing us to keep them afloat.
For those that say that it provides people with jobs, why are we supposed to subsidize people with jobs that just aren’t needed anymore. Industries die and new industries are born. No ones complaining about all the blockbuster video jobs that ended with DVD and VHS.
That gap between the ‘now’ and what comes after can be concerning for many so I can see where they’re coming from. However, innovation also helps create more opportunities. The car dealership era is definitely evolving into something new. Funnily enough, I still remember the blockbuster days.
“Dealerships are paying manufacturers for their cars, so there’s no reason for Ford to fight against dealerships. If someone was paying you $100 for a chair you made, then they sell it to someone else for $150, why would you care?”
If I only had one chair to sell I would absolutely care. What sucker manufacturer would sell that chair to a wholesaler for only $100, if he knew a retail customer would willingly pay $150? Better to sell to the customer directly and pocket the extra $50.
On the other hand, if I have many chairs to sell, perhaps I do not want to hire a large retail staff, open physical stores up and down the state, hire a customer service division, and all the other headaches retail sales require. Rather than incurring all those additional expenses it might be better to just sell a whole bunch of chairs to a wholesaler at $100 a pop and be done with it.
It’s definitely understandable that a car dealership needs profit margins that make sense for them to be in business. Most manufacturers aren’t willing to deal with direct orders. However, having the option to choose nowadays whether to go to a dealership or purchase from a manufacturer like Tesla directly is a benefit to us as consumers. In the future, I wouldn’t be surprised if more car makers begin to sell directly if they’re allowed.
interesting topic.
I always wounder why car companies to don’t sell car directly.
Most of the commenters are missing the main points which is that this is the Unites States people, not the Soviet Union! In a free country anyone should be able to sell anything to anyone. Period.
We have no way of knowing what the car market would look like sans the socialist laws. But I can assure you that, absent the regulations there would be all sorts of innovation and the consumer would be better off.