[shipill]

In today’s internet age, why do car manufacturers still rely on dealers rather than selling cars on their website and cut out the middle man?


Are the laws or requirements that force manufacturers to use dealerships? If so, how is Tesla not following those rules?

[Redd]

There was a car brand in the noughties that used to sell new cars on a website. Remember Scion? Nobody does either. Lol

[upstatedoc]

Still sore about that rude salesman?

[shipill]

Originally Posted by upstatedoc

Still sore about that rude salesman?

I hate dealing with salesman at dealerships. They are always assholeish.

[Mosaud1998]

Originally Posted by upstatedoc

Still sore about that rude salesman?

[smrtypants44]

Originally Posted by shipill

In today’s internet age, why do car manufacturers still rely on dealers rather than selling cars on their website and cut out the middle man?


Are the laws or requirements that force manufacturers to use dealerships? If so, how is Tesla not following those rules?

I'm sure part of the contract the dealership signs with the manufacturer guarantees that the oem wont do direct sales. Dealerships invest a lot of money on branding and I'm sure they wouldn't without some sort of guarantee they wont be cut out of the process.

[Patton250]

Originally Posted by shipill

In today’s internet age, why do car manufacturers still rely on dealers rather than selling cars on their website and cut out the middle man?


Are the laws or requirements that force manufacturers to use dealerships? If so, how is Tesla not following those rules?

I bought my last two cars online exclusively. I still had to go pick one of them up at the dealership and the other (my first BMW) was delivered to my house by the dealership but everything was done online. so they could do that. Although I suspect most people want to see and try the car out first if possible. You can only do that at a dealership i guess.

[vreihen16]

Originally Posted by shipill

Are the laws or requirements that force manufacturers to use dealerships? If so, how is Tesla not following those rules?

I'm pretty sure that there are laws in some states, and they prevent Tesla from selling there without franchise dealerships.....

[Darth One]

Most states have franchise laws that prohibit direct OEM-to-consumer sales. They have to go through dealers. That's the primary roadblock

[flsupraguy]

Its called franchise law

[damnitBobby]

Originally Posted by shipill

Are the laws or requirements that force manufacturers to use dealerships? If so, how is Tesla not following those rules?

As an example, in Texas Tesla cannot sell directly to consumers (as direct sale is not allowed here per state law). The way Tesla gets around this is by having the consumer complete the transaction by phone or online - treating it virtually as an out-of-state transaction. There are still Tesla showrooms here in Texas but the actual sales transaction is not done in person.

[tgrundke]

So, I'll discuss the real reason first, then we can talk about what the implications are for you as a buyer.

Automakers want to sell to dealerships because it allows them to do two very important things: First, it allows them to avoid the overhead involved with the inventory, distribution, and sales of the vehicles, and two, it allows them to quickly book cash.

Starting with the latter, the cash situation is critical due to the incredibly capital intensive nature of the business. Cash is the lifeblood of the automakers because the fixed costs and operating expenses are immense and the amount of liquid capital required to keep things moving is critical. If factories aren't operating at close to 80% capacity or better, the automakers are losing money. Want to know why BMW so heavily subsidizes leases? It's in an effort to keep the factory lines humming, which keeps costs in line. When a car leaves the factory, the dealership is invoiced. The automaker doesn't need to wait the average 80-90 days to get paid, they get paid in 30.

Second, by offloading sales, inventory and support the automakers don't need to carry that financial burden. See point #1 above: this is an insanely capital intensive business and every dollar counts. In addition, local dealers have a much better pulse on the local market and know what sells (like it or not). This is not like selling pallets of iPhones - cars take up lots of real estate, and you can't inexpensively move a truckload of slow selling cars to another state like you could shuffle iPhone inventory around.

Third, are the franchise laws. I think they're silly and monopolistic, but they are what they are.

Now let's think of this a bit different. Whenever this topic comes up, inevitably its beacuse people say "I hate working with car dealerships, they're never fair". This is not necessarily an incorrect statement, but it also goes with the underlying assumption that cutting out the dealerships and going direct sales would invariably lead to lower costs.

Nope. You may have a more convenient experience, but you will most certainly not get a better deal. Assuredly you will end up with higher prices than you do currently. In one regard, yes, it is more "fair" because like with your iPhone, everyone will pay the same price. Again, we're not talking about $999 iPhones here, we're talking about a $40,000+ purchase where a 5% discount can yield a significant savings in most peoples' mind. Going direct leads to less competition and due to the increased cost structure on the automaker, will inevitably lead to higher costs being passed along to the end consumer.

Don't take any of this as my saying that the dealership model is fantastic. Far from it. I'm merely trying to point out the reasons why it exists as it does and how things might look were the model to change.

[540iSUP]

I saw a video on Youtube explaining just this. It might have actually been a donut media video, but they explain why there can only be a certain number of car dealerships within an area and that Tesla isn't really a car dealer so they are able to use a loophole.

[Efthreeoh]

Originally Posted by tgrundke

So, I'll discuss the real reason first, then we can talk about what the implications are for you as a buyer.

Automakers want to sell to dealerships because it allows them to do two very important things: First, it allows them to avoid the overhead involved with the inventory, distribution, and sales of the vehicles, and two, it allows them to quickly book cash.

Starting with the latter, the cash situation is critical due to the incredibly capital intensive nature of the business. Cash is the lifeblood of the automakers because the fixed costs and operating expenses are immense and the amount of liquid capital required to keep things moving is critical. If factories aren't operating at close to 80% capacity or better, the automakers are losing money. Want to know why BMW so heavily subsidizes leases? It's in an effort to keep the factory lines humming, which keeps costs in line. When a car leaves the factory, the dealership is invoiced. The automaker doesn't need to wait the average 80-90 days to get paid, they get paid in 30.

Second, by offloading sales, inventory and support the automakers don't need to carry that financial burden. See point #1 above: this is an insanely capital intensive business and every dollar counts. In addition, local dealers have a much better pulse on the local market and know what sells (like it or not). This is not like selling pallets of iPhones - cars take up lots of real estate, and you can't inexpensively move a truckload of slow selling cars to another state like you could shuffle iPhone inventory around.

Third, are the franchise laws. I think they're silly and monopolistic, but they are what they are.

Now let's think of this a bit different. Whenever this topic comes up, inevitably its beacuse people say "I hate working with car dealerships, they're never fair". This is not necessarily an incorrect statement, but it also goes with the underlying assumption that cutting out the dealerships and going direct sales would invariably lead to lower costs.

Nope. You may have a more convenient experience, but you will most certainly not get a better deal. Assuredly you will end up with higher prices than you do currently. In one regard, yes, it is more "fair" because like with your iPhone, everyone will pay the same price. Again, we're not talking about $999 iPhones here, we're talking about a $40,000+ purchase where a 5% discount can yield a significant savings in most peoples' mind. Going direct leads to less competition and due to the increased cost structure on the automaker, will inevitably lead to higher costs being passed along to the end consumer.

Don't take any of this as my saying that the dealership model is fantastic. Far from it. I'm merely trying to point out the reasons why it exists as it does and how things might look were the model to change.

Great post! This is exactly the situation.

I'll further add that Tesla's direct to consumer sales method is going to become financially burdensome to it once it has a large fleet of cars operating in the market. Eventually when it has more EV competition where desire for its products slow and delivery times start to reach industry norms, inventory and distribution costs are going to vastly increase. US Accounting rules are problematic for any manufacturer that holds unsold inventory, which includes both vehicles and parts. As you stated, the franchise dealerships take on this burden. For a major auto manufacturer these represent huge tax costs if it were to hold inventory on the corporate books.

[DenverSteve]

Originally Posted by Patton250

I bought my last two cars online exclusively. I still had to go pick one of them up at the dealership ...

It might be local control but (as above) every dealership I'm aware of has an "online only" button or "internet sale" dude/dudette who handles internet sales. But just think about the constant abuse by all the knuckleheads calling in all day, who are too lazy to get out of their fuzzy slippers to drive down to the dealership to annoy the salesperson about "how much discount can I get...." My last few cars took less than an hour to do everything, including paying. If I want a car, taking a drive to the dealership to get the car is part of the fun.

Not to the OP - Like with most things, if you're a person who has constant negative issues when dealing with everyone.... you might examine the one constant ingredient - you.

[Bc2005]

The original reason that most states legislated against direct manufacturer sales was that the lack of dealer competition would give the consumer no choice. If everyone buys direct from BMW ( for example), all final prices and discounts would be controlled by BMW.

You might not enjoy playing one dealer against another to get a better price, but in a direct manufacturer sales model you don’t even have a choice.

[Alfisti]

Yeah i don't get the choice argument. i get the cash flow argument but choice, well i click on mercedes instead.

[oVeRdOsE.]

[TheWatchGuy]

id much rather buy from a dealer than direct from manufacturer, due to the ability to negotiate.

even if i have to waste my time haggling, I know there is a good chance i can negotiate a deal below msrp.

Look at how you buy a Tesla. The price is the price and there is no haggling. are those prices lower than what they would be if there was a dealer? maybe, but probably not.

[Efthreeoh]

Originally Posted by Onesie

So you guys are saying that this model is such a necessity that we have to have legislation mandating it?

Yes, to control antitrust situations, i.e. price fixing between dealerships.

[Efthreeoh]

Originally Posted by TheWatchGuy

id much rather buy from a dealer than direct from manufacturer, due to the ability to negotiate.

even if i have to waste my time haggling, I know there is a good chance i can negotiate a deal below msrp.

Look at how you buy a Tesla. The price is the price and there is no haggling. are those prices lower than what they would be if there was a dealer? maybe, but probably not.

In the end, the GM Saturn dealership model didn't turn out very well.

[Bongoxxx]

Originally Posted by Efthreeoh

In the end, the GM Saturn dealership model didn't turn out very well.

Probably more to do with the product than the dealership model.